Census and HUD reported March new home sales were down 14.5% in March to a seasonally-adjusted annual basis of 384,000, the lowest level since July 2013. Three of the four regions also saw a decline while the Northeast saw a small (3,000 homes) increase. The US is down year-over year by 13.3% and all four regions also experienced an annual decline.
Home prices, on the other hand, rose 12.6% year-over-year to $290,000, the highest ever recorded. The higher prices are due to sales sliding up the price spectrum. The share of homes sold between $300,000 and $500,000 rose from 30% in the fourth quarter of 2013 to 37% in March. The share selling for less than $200,000 dropped 3 percentage points.
Even as mortgage rates soften a bit, potential home buyers with even small dings in their credit background are unable to qualify for a mortgage and so are out of the market. Since they tend to buy more modestly priced homes, that end of the spectrum has seen lower sales and the whole market has lower demand.
Congress is working on at least some solutions to the uncertainty in the mortgage market by defining the government’s place in the secondary market. A replacement for Fannie Mae and Freddie Mac is being seriously discussed in both chambers and a markup is scheduled in the Senate this month. While that will not solve all the uncertainties and tightness in the market, it will go a long way to providing a path to a more normal, sustainable conduit for mortgages from originator to investor.
The first quarter 2014 has been rocked by unusually cold and wet weather causing a drop in construction and some odd sales patterns. January was better than expected, February was in line with expectations and March was lower than expected. The average is close to what NAHB expected: 434,000 actual versus a forecast of 438,000. Looked at from a quarterly basis, activity is in line with the modest recovery. The trend downward for two months is the worrisome part. Pent up demand, relatively low mortgage rates and still good affordability support confidence that sales will improve as 2014 evolves.