Considering the historically low inventory in the resale market, it was supposed to be another impressive month for new home sales.
Instead, February experienced an 18.2 percent monthly decline in new single-family home sales, totaling 775,000 annualized units, according to the US Census Bureau. Climbing mortgage rates, an ongoing lumber shortage and construction delays pushed new home prices higher, hampering affordability for would-be buyers. Last month, the median sales price of a new construction home hit $349,400, while the average amounted to $416,000.
A recent report from the National Association of Home Builders found that a building material shortage caused by surging demand has increased the typical price of a new home by about $24,000. For now, low borrowing costs are helping to offset these price hikes, but climbing mortgage rates could soon change that.
“Going forward, we believe rising mortgage rates will likely soften homebuyer demand modestly, while homebuilder constraints, including the ongoing high prices of lumber and other materials, will likely dampen the supply of new homes,” said Duncan.
At the end of February, the seasonally adjusted estimate of new homes for sale equated to 312,000 units, or a 4.8-month supply at the current rate of sales. Pre-construction listings and home sales rose significantly, up 64 percent and 20 percent year-over-year.
Worn out from bidding wars, many buyers are opting to take advantage of today’s low mortgage rates and build from the ground up. Builders are now racing to keep up with the demand and deliver new homes on time, although some are reportedly delaying the start of construction until lumber prices return to normal.
The freezing temperatures that swept much of the United States are also at fault for February’s less-than-stellar performance. “While the decline was the sharpest since 2013, the drop was likely due to abnormally cold weather during the month,” added Duncan, who expects new home sales to rebound in March.
Despite these factors, sales of newly built homes last month remained 8.2 percent above the February 2020 estimate. As homebuilders across the country prepare to launch new developments this spring, buyer demand is anticipated to remain strong.