After a near decade high in January, new home sales for single-family houses plummeted 18.2% to a seasonally adjusted annual rate of 775,000 in February — the sharpest month-over-month decline since 2013, according to estimates by the U.S. Census Bureau and the Department of Housing and Urban Development.
However, continued demand by homebuyers did manage to push new home sales 8.2% higher than a year ago, though not nearly as high as January’s 19.3% year-over-year jump.
Regionally on a year-to-date basis, new home sales rose in three of the four regions, up 6% in the Northeast, 24.7% in the Midwest and 23.2% in the South. As for the West, new sales dropped 9.3% year-over-year.
While some economists pointed to harsh weather as a likely deterrent of February home sales, others noted the plague of rising home prices, limited inventory and the uptick in mortgage rates. A common note among the economists was the mounting costs of building materials.
“Though buyer traffic remains strong, some home-building activity is being delayed due to material shortages,” said Chuck Fowke, chairman of the National Association of Home Builders “This is forcing builders and buyers to grapple with rising affordability issues, as soaring lumber prices have added more than $24,000 to the price of a new home.”
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Material prices have surged in recent months, with lumber prices up 59% year-over-year in February according to some measures, the largest annual jump since the 1940s. These rising prices seem to be eating into otherwise unbridled homebuilder optimism, said Zillow economist Matthew Speakman.
“Spirits among builders remain high, and activity should remain strong in the months to come, but sentiment has fallen back from the record highs set a few months ago,” Speakman said. “But many conditions — except volatility in materials prices — have probably already passed, and a large share of homes for sale that have not yet been started suggests that while weather may have closed job sites for a time, it didn’t close sales centers.”
The seasonally adjusted estimate of new houses for sale at the end of February was 312,000. This represents a supply of 4.8 months at the current sales rate.
A new home sale occurs when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the February reading of 775,000 units is the number of homes that would sell if this pace continued for the next 12 months.
On Monday, the National Association of Realtors released data of February’s existing home sales, which were revealed to be weak month-over-month. At just two months supply left for existing homes, Fannie Mae chief economist Doug Duncan bets that buyers will gravitate toward the more readily available stock and new home smell.
”The new sales number continued the pattern of weak February housing data revealed by previously released figures on housing starts, for-sale listings, and mortgage applications. Therefore, we expect the drop-off to be temporary, with sales of new homes rebounding sharply in March,” Duncan said.
But will borrowers continue to want to buy amid rising prices and mortgage rates? The median sales price of a new home was $349,400, up 5.3% over the $331,800 median sales price posted a year earlier. The average sale price was about $65,000 more at $416,000.