US New Home Sales Collapsed 18% In February

New home sales printed a sizable miss to consensus for February, adding to evidence that America’s red-hot housing market may be cooling off.

The 775,000 annual rate last month represented a nine-month low. The 18.2% drop (figure below) was the worst decline in nearly eight years. The market was looking for 870,000 on the headline.

The range of estimates was 750,000 to 970,000 from nearly five-dozen economists, so this very nearly matched the most pessimistic guess. The previous three months were revised higher by 77,000.

Obviously, weather was a factor. Some parts of the country were frozen solid last month — literally. YoY, sales were up 8.2%, a reflection of the pandemic effect on housing.

Tuesday’s data came on the heels of a disappointing read on existing home sales, which dropped 6.6% last month (figure below), to a six-month nadir.

The demand story really hasn’t changed all that much, something NAR chief economist Lawrence Yun was keen to emphasize earlier this week. “Even with the decline in sales, days on the market is swift [and] prices are rising strongly,” he said. “Demand isn’t disappearing from the marketplace… it really is a lack of supply.”

Mortgage rates have risen fairly sharply, albeit from record low levels (figure below). According to Bloomberg Economics, the 30-year mortgage rate would need to eclipse 4%, before affordability concerns would dent momentum in 2021.

One potential problem is that mortgage rates are rising just as prices are soaring and the spring selling season looms. More simply: The equation is becoming more economically challenging for would-be buyers.

“Winter storms and generally cold conditions deterred buyers” in February, but “sales are likely to bounce back in March,” ING said, before cautioning that “rising mortgage rates and a dearth of supply are a constraint over the longer term [while] surging house prices could create a major headache for the Fed.”

February’s new home sales data showed the median new home price rose 5.3% (YoY) to $349,400. The average selling price was $416,000.

Months’ supply in February was 4.8.

That was up from 3.8 in January. The monthly rise was tied for the second-largest MoM jump in more than a decade.



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One thought on “US New Home Sales Collapsed 18% In February

  1. “Demand isn’t disappearing from the marketplace… it really is a lack of supply,” quoth the King of the Realtor-Economists as the months-of-supply graph ticked upward on the screen behind him.

    I suppose both things are possible, of course, if urban dwellers are creating a glut of condo and apt listings as they go searching for the perfect suburban McMansion. NAR doesn’t break down months-of-supply by segment, so I may never know.

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