New single-family home sales posted a second monthly decline in February as housing demand was affected by a jump in mortgage rates. After starting at 3.1% in December, rates increased to 3.45% in January and 3.76% in February, per Freddie Mac. Additionally, builders continue to grapple with supply-chain issues, limiting inventory in a market for which new construction is an increasingly important source of supply.
The U.S. Department of Housing and Urban Development and the U.S. Census Bureau estimate of sales of newly built, single-family homes in February slipped to a 772,000 seasonally adjusted annual pace, a 2% decline from the downwardly revised January rate of 788,000. The February rate is 6.2% below the February 2021 reading of 823,000. After an unsustainably strong period of new home sales from summer 2020 to early 2021, sales have settled back to the long-term trend, constrained by construction constraints and housing affordability concerns.
Median sales price in February came in at $400,600, a 10.6% year-over-year gain. Prices have increased as building material and other development costs have increased. That process continues due to supply-chain issues and elevated inflation pressures.
Sales-adjusted inventory levels are at a near balanced 6.3 months’ supply in February. The count of completed, ready-to-occupy new homes is just 35,000 homes nationwide. Total inventory (for all stages of construction) increased to 407,000, a 33% gain from February 2021.
Inventories levels continue to rise due to several factors. First, construction times have increased, leading to more inventory in the construction pipeline. Second, inventory has increased with higher demand and lower resale supply. And finally, the components of inventory continue to adjust. As noted above, there are just 35,000 completed homes in inventory, 8.6% of the total. In contrast, homes not started construction were 26% of the total in February 2022.
Regionally in February, new home sales, on a year-to-date basis, are down 16.9% in the Northeast, 25.7% in the Midwest, 10.3% in the South, and 8.5% in the West due to the unsustainable strong start for 2021 sales.
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Twice you say the number of homes sold was at an unsustainable level and that is a part of the drop in sales numbers, I would disagree. We have underbuilt for many many years and we should be at a 1.5 million unit range including multi family to meet demand.
I really think the key factors:
#1 – Price increases- The buying market can’t continue to absorb the large price increases without a push back.
#2 – Mortgage rate increase- double whammy. Someone who recently refinanced see a rate that is up 1-2% from their current rate, even though today’s rate is still a great rate historically, just can’t stomach it. Also, now increased price, increased rate, hurts buying power, therefore they are getting less house.
The issue this time around is not too many houses, the issue is inflationary pressures pushing prices and now the buying market is pushing back saying this does not make sense to us. We are going to see some slow down until the market can stomach the price increases, or the buyer just has to buy due to lifestyle needs.
I think we will have buyers waiting as they adjust to what may be the new normal in pricing. This is what really concerns me.