New home sales fell in January, with analysts linking the decline to higher interest rates, the omicron COVID-19 variant and colder weather.
The U.S. Census Bureau and Department of Housing and Urban Development released their monthly data on Thursday, showing that sales of new single-family homes in January were at a seasonally-adjusted annual rate of 801,000, or 4.5% off. lower than the revised December rate of 839,000. The rate was also 19.3% lower than the January 2021 estimate of 993,000.
Three of the four US regions also saw sales decline in January compared to the previous month. Sales fell 10.7% in the Northeast, 7.4% in the South and 3.7% in the Midwest. Sales rose 1.2% in the West compared to the previous month.
The median selling price for new homes sold nationally in January was $423,300. The median means half sold for more and half sold for less. The average selling price was $496,900, according to the report.
The seasonally adjusted estimate of new homes for sale at the end of January was 406,000, representing 6.1 months of supply at the current sales rate.
Doug Duncan, chief economist at Fannie Mae, described the report as “modestly weaker” than expected.
He said the results “may have been held back in part by the Omicron wave and abnormally cold weather during the month.” He noted, however, that the annual rate of sales was still the second highest sales pace since March 2021.
“Consistent with recent data on existing home sales, we think many buyers may have rushed to shop early in the year to get ahead of expected increases in mortgage rates,” Duncan said. “Overall, the report indicates a likely modest downward revision to our near-term new sales forecast.
He also said the supply of homes for sale actually rose 0.5 percentage points to 6.1%, “although this was almost entirely due to a 10.4% increase in the number of homes for sale. The story is similar for new homes sold, as the number of homes sold but not started jumped 30.2%, while homes sold under construction and completed each fell. indicate that homebuilders are still struggling to keep up with construction orders.
He said Fannie Mae continues to expect new home sales to have a strong year in 2022, “as builders continue to work through their current construction backlogs and demand for new homes remains strong in due to the historically tight supply of existing homes available for sale”.
He cautioned, however, that “changes in monetary and fiscal policy, as well as recent geopolitical events, pose a greater risk than usual to our outlook for interest rates and real estate activity.”
U.S. First Deputy Chief Economist Odeta Kushi noted that, by stage of construction, the share of completed homes sold was 24.5%, down from 26.5% a year earlier, while the share of homes in construction sold rose from 41.6% to 46%. She said it’s a clear signal that “builders continue to face construction delays due to supply chain issues and higher material costs.”
She also noted that affordability remains a challenge, “as rising new home prices may drive some buyers off the price. A year ago, 29% of new home sales were priced below $300,000. In January of this year, only 9% of new home sales were priced below $300,000. Rising mortgage rates further worsen affordability.
She said builders continue to face supply-side barriers that make construction difficult and more expensive, including a lack of building materials and devices, chronic labor shortages and higher input costs. “It increases the time it takes to build a house and contributes to higher prices for new homes,” she said.
The new home sales report “is indicative of some of those challenges,” Kushi said. “Builders are entering 2022 with backlogs that they are struggling to clear due to material and labor shortages. And new home prices are near an all-time high. Demand for homes homes remains strong as there is a lack of inventory of existing homes, but rising new home prices could exclude some buyers.
She added, however, that while mortgage rates trend higher in 2022, there could be an “unintended side effect” of the conflict in Eastern Europe: downward pressure on mortgage rates.
The 10-year Treasury yield fell on Thursday, she said, “likely in response to the worsening Russian-Ukrainian conflict, and mortgage rates could follow suit.”
“Geopolitical events play a big role in impacting the long end of the yield curve and mortgage rates,” Kushi said. lower mortgage rates.