Home sales

US New Home Sales Fall Further as Mortgage Rates Rise; prices push higher

A house under construction stands behind a ‘sold’ sign at a new development in York County, South Carolina, U.S., February 29, 2020. REUTERS/Lucas Jackson

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  • Sales of new homes fell 2.0% in February; January revised down
  • Median home prices rise 10.7% from a year ago
  • The supply of new homes for sale amounts to 407,000 units

WASHINGTON, March 23 (Reuters) – Sales of new single-family homes in the United States fell unexpectedly in February amid rising mortgage rates and rising home prices that are crowding out some first-time buyers from the Marlet.

Despite the second consecutive monthly decline reported by the Commerce Department on Wednesday, sales remained above their pre-pandemic level. Economists have seen reduced affordability dampen activity in the near term, but expected the new housing market to grow this year given pent-up demand, record inventory of homes already owned and strong increases of salaries.

“With interest rates continuing to climb due to the negative supply shock resulting from the Russian invasion of Ukraine, home sales are expected to decline in the coming months,” said David Berson, economist in chef at Nationwide in Columbus, Ohio. “But unless mortgage rates spike or the economy stagnates or worse, the decline in new home sales should be modest.”

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New home sales fell 2% to a seasonally adjusted annual rate of 772,000 units last month. The January sales pace was revised down to 788,000 units from the previously reported 801,000 units. Sales jumped 59.3% in the Northeast and 6.3% in the Midwest. But they fell 1.7% in the densely populated South and 13.0% in the West.

New homes are a leading indicator of the housing market because they are counted when a contract is signed.

Economists polled by Reuters had forecast new home sales, which account for 11.4% of U.S. home sales, to rebound to a rate of 810,000 units. Sales fell 6.2% year-on-year in February. They peaked at a rate of 993,000 units in January 2021, which was the highest since late 2006.

Mortgage rates jumped in February and continued to climb after the Federal Reserve last week raised its key rate by 25 basis points, the first hike in more than three years, and presented an aggressive plan to push costs borrowing at restrictive levels in 2023.

The 30-year fixed rate jumped 23 basis points to a three-year high of 4.50% last week, data from the Mortgage Bankers Association showed on Wednesday.

Stocks on Wall Street were trading lower as oil prices rose. The dollar appreciated against a basket of currencies. US Treasury yields fell.

SUPPLY-DEMAND IMBALANCE

Although mortgage rates remain low by historical standards, high house price inflation has combined to significantly increase the typical monthly mortgage payment.

“Mortgage payments as a share of median family income topped 20% for the first time since late 2007,” said Matthew Pointon, senior real estate economist at Capital Economics in New York. “This will act to cool housing market activity. A record number of existing homes on the market, implying new sales, will lead to a slight gain in 2022.”

Last week’s data showed that sales of previously owned homes fell sharply in February.

The median price of new homes in February rose 10.7% from a year ago to $400,600. House prices are up 31% from three years ago. None of the homes sold last month were under $200,000. Strong house price growth is expected to continue through this year and into 2023.

“We may be approaching a tipping point when rising housing costs and rising mortgage rates dampen both sales and price increases, but given the imbalance of supply and demand, we may not reach that point this year,” said Robert Frick, business economist at Navy Federal Credit Union in Vienna, Virginia.

There were 407,000 new homes on the market, the highest since August 2008 and up from 398,000 units in January. Houses under construction accounted for 65% of the inventory, with houses to be built representing approximately 26%.

The backlog of homes approved for construction but not yet started is at an all-time high as builders grapple with shortages and higher prices for inputs like framing lumber, as well as cabinets, garage doors, counters and appliances.

At the rate of February sales, it would take 6.3 months to eliminate the supply of homes on the market, compared to 6.1 months in January.

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Reporting by Lucia Mutikani Editing by Paul Simao and Diane Craft

Our standards: The Thomson Reuters Trust Principles.