After posting double digit month-over-month increases in November and December, new home sales dropped in January, decreasing 4.5% from the month prior to a seasonally adjusted annual rate of 801,000, according to data released by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau on Thursday. Year over year, the sale of new homes was down 19.3% in January.
“The only-modest setback in new home sales reinforced the fact that both home shoppers and home builders continue to stand firm amid a slew of challenges,” Zillow economist Matthew Speakman said in a statement. “With the wind blowing against them, builders navigated significant supply chain and labor disruptions, including a very difficult past two months thanks to a wave of Covid infections sweeping the nation and contributing to lost man hours. And while pandemic-related pressures appear to be easing in other parts of the economy, the shortage of key building materials – notably windows and wood products – persists. But these headwinds cannot be ignored and builders are still falling short of potential — last month’s figure was 19.3% below January 2021, which represented a post-Great Recession record high.”
At the end of January, an estimated 406,000 new homes were still for sale, which at the current sales rate represents a 6.1 month supply. With the supply of existing homes for sale hitting record lows and the various labor and material shortages hitting the homebuilding industry, this relatively high level of supply of new homes is giving housing economists reason to be cautiously optimistic for new home sales this spring.
“With home prices rising at unprecedented rates, and existing home inventory now at the lowest levels on record — and demand expected to remain strong – prospective buyers are eagerly waiting for new homes to come onto the market even if it means having to wait for months, or even years, before construction is complete,” Speakman said in a statement. “Just 10% of new homes available for sale in January were fully built, slightly more than lows reached in the fall but still well below historic norms.”
Affordability remains a problem, however, with the median homes sales price for new homes rising to $423,300 in January from $377,000 in December.
“One year ago, 29% of new-home sales were priced below $300,000,” First American deputy chief economist Odeta Kushi said in a statement. “In January of this year, only 9% of new-home sales were priced below $300,000. Rising mortgage rates further worsen affordability.”
However, Kushi notes that the escalating Russia-Ukraine conflict may impact how quickly and how much mortgage rates rise.
Regionally, new home sales fell in three out of the four national regions. In the Northeast, new home sales were down 10.7%, while the Midwest and South saw 3.7% and 7.4% drops, respectively. The West was the only region that saw a rise in new home sales, with an increase of 1.2%.