New home sales tumble in February due to construction costs and mortgage rates

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2021 has seen a significant increase in housing starts, but so far 2022 has failed to deliver a similar level of optimism for builders and integrators. According to a new report from the US Department of Housing and Urban Development and the US Census Bureau, rising mortgage rates and construction costs depressed new home sales in February, although demand remains strong due to a lack of inventory of existing homes.

The government says sales of newly built single-family homes in February fell 2.0% to a seasonally adjusted annual rate of 772,000 from a downwardly revised reading in January. New home sales are down 6.2% from February 2021.

“The new home market is more important than ever as a source of inventory given the historically low level of resale homes available for purchase,” says Jerry Konter, president of the National Association of Home Builders (NAHB) and builder and promoter of Savannah. , Ga. “However, higher construction costs are hampering new home sales as the cost of lumber, OSB, shingles and other materials rises. Policymakers could help by reducing tariffs on materials as an anti-inflationary measure.

For context, a new home sale occurs when a sales contract is signed or a down payment is accepted. The house can be at any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, February’s reading of 772,000 units is the number of homes that would sell if this pace continued over the next 12 months.

“New home sales slowed in January and February as mortgage rates rose,” said Robert Dietz, chief economist, NAHB. “NAHB forecasts further interest rate gains as monetary policy tightens significantly in 2022, which will put further pressure on housing affordability. However, due to the limited number of existing single-family homes on the market , additional new construction is needed to keep up with demand, even though construction costs significantly outpace inflation.

The inventory of new single-family homes rose 33.0% from a year ago to 6.3 months of supply, with 407,000 available for sale. This number is a bit misleading, however, as only 35,000 of them are completed and ready to be occupied.

The median sale price rose to $400,600 in February and was up 10.6% from a year ago, even as costs for home building materials rose 20% over the same period .

Regionally, compared to January 2022 readings, new home sales are up 59.3% in the Northeast, 6.3% in the Midwest, 1.7% in the South and 13 .0% in the West.

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