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.