What do the numbers say about current housing supply and demand?
Economists have weighed in on the falling number of new home sales in February, which was made public by the Census Bureau on Wednesday.
New home sales decreased 2% to a seasonally adjusted rate of 772,000 during the month. For Doug Duncan, chief economist at Fannie Mae, the figures are way below expectations.
“The figure comes after a downward revision to January but an upward revision to December,” Duncan said. “While we expect the ongoing lack of existing homes for sale will still support demand for new home sales this year, given recent developments, the slowdown in sales over the past two months may end up reflecting a turning point going forward.”
Homebuilders continue to face various challenges, from rising costs for materials to rising mortgage rates, as reflected in the data. Holden Lewis, mortgage expert at NerdWallet, also noted a new builder focus at the higher end of the market.
“More than a quarter of a million homes were for sale and under construction at the end of February, an unusually high number. Shortages of garage doors, windows and doors contribute to the construction backlog. Builders are selling to the higher end of the market: 33% of new homes sold in February cost $500,000 or more, compared to 22% in February 2021.”
Meanwhile, Danielle Halle, chief economist at Realtor.com, said the construction backlog pushed homebuilders to focus on pipeline management and on the completion of started homes instead.
“Still, a historically higher share of new homes for sale remain in the ‘not yet started’ category, not exactly a good alternative for a buyer seeking a move-in ready home,” Halle said. “Looking ahead, households planning to move can expect higher costs whether they aim to own or rent.”
But there is reason to be positive, with the supply of new homes rising 2.3% to 407,000 in February, which could ease some pressures of the major housing shortage in the US. However, Duncan warned aspiring homebuyers that they are now confronted with a 4.5% rise in mortgage rates.
“With the rapid rise in mortgage rates, along with increased economic uncertainty given the Russian invasion of Ukraine and the beginning of a monetary policy tightening cycle, new home sales demand may now be softening,” Duncan said. “Recent survey data from the National Association of Home Builders also points to an expectation among homebuilders of softening sales in the latter half of the year.”
“This suggests some slowing of demand, which should soften further if mortgage rates continue to rise,” Duncan added. “Even if rising mortgage rates stabilize, affordability constraints are now at a level that is likely increasingly weighing on sales, while further increases in financing costs for homebuilders may also modestly limit the conversion of new lots into completed units.”