Sales of new homes in February slid 4.4% to the second-highest level in 12 years, dropping from January’s record high, according to a government report.
Homebuilders sold 765,000 houses at a seasonally adjusted annual rate. The median sales price of new homes was $345,900, a gain of 7.8% from a year earlier, the data showed.
The supply of new homes for sale by the end of February was 319,000, seasonally adjusted, representing a supply of 5 months at the current sales rate. That’s an improvement from January’s three-year low of 4.8 months.
That tight inventory is a reason for hope as home sales stall while the U.S. grapples with the spread of coronavirus, Wells Fargo economists said in a report on Tuesday.
“Inventories of new homes remain exceptionally lean, particularly for completed homes,” the report said. “Persistently low inventories, particularly of completed homes, are one reason we believe any downturn in the homebuilding industry will be relatively short.”
The sales data shows the strength of the housing market in the final month before the COVID-19 pandemic hit the U.S., said Matthew Speakman, a Zillow economist.
“Early 2020 will come to be seen as a recent high-water mark in the U.S. housing market, with sales of both new and existing homes riding a wave of positive momentum, and builders showing confidence and ramping up production,” Speakman said. “COVID-19 still felt like a far-away problem, and a strong job market, forgiving weather, and exceptionally low mortgage interest rates all helped push more buyers into the market”
Even with the strong results, February’s housing market had challenges, such as supply and affordability issues, he said.
“In hindsight, this calm before the storm wasn’t without its flaws – most notably exceptionally tight inventory and worsening affordability, especially for often pricier new-construction homes and even at rock-bottom mortgage rates,” Speakman said. “But by most measures, the housing market looked to be in a good place and primed for a solid spring selling season – a season that has since been put on indefinite hold.”
According to Speakman, there are now two eras in the U.S. housing market and the economy at large – pre-coronavirus and post-coronavirus – and what happens next is uncertain at best.
“The months ahead will almost certainly be a difficult stretch for the industry, but the promise of better times to come on the other side may yet be enough to keep things afloat,” he said.