Sales of new homes fell in January, with analysts linking the decline to rising interest rates, the COVID-19 omicron variant and colder weather.
The U.S. Census Bureau and Department of Housing & Urban Development jointly released their monthly data on Thursday, saying sales of new single‐family houses in January were at a seasonally adjusted annual rate of 801,000, 4.5 percent below the revised December rate of 839,000. The rate also was 19.3% below the January 2021 estimate of 993,000.
Three of the four U.S. regions also saw sales decline in January from a month earlier. 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 from a month earlier.
The median sales price of new houses sold nationwide in January was $423,300. The median means that half sold for more and half for less. The average sales price was $496,900, the report said.
The seasonally adjusted estimate of new houses for sale at the end of January was 406,000, representing a supply of 6.1 months 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 unseasonably cold weather over the month.” He noted, though, 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 believe many buyers may have rushed to make their purchases around the turn of the year to get ahead of expected increases in mortgage rates,” Duncan said “On balance, the report points to a likely modest downward revision to our near-term new sales forecast.”
He also said the supply of homes for sale actually increased by 0.5 percentage points to 6.1%, “though this was driven almost entirely by a 10.4% increase in the number of homes for sale but not started. The story is similar for new homes sold, as the number of homes sold but not started jumped 30.2%, while houses sold that are under construction and completed each pulled back. Together these point to homebuilders 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 working through their current construction backlogs and as demand for new homes remains strong due to the historically tight supply of existing homes available for sale.”
He cautioned, however, that “changing monetary and fiscal policy, as well as recent geopolitical events, pose a larger-than-usual risk to both our interest rate and housing activity forecasts.”
First American Deputy Chief Economist Odeta Kushi noted that, by stage of construction, the share of completed houses sold was 24.5%, down from 26.5% a year earlier, while the share of homes under construction that sold increased from 41.6% to 46%. She said that is a clear signal that “builders continue to grapple with construction delays due to ongoing supply-chain issues and higher material costs.”
She also noted that affordability remains a challenge, “as rising new-home prices may be pricing out some buyers. One 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 obstacles that make it difficult and more expensive to build, including a lack of construction materials and appliances, chronic labor shortages, and higher input costs. “This increases the time needed to build a home and contributes to higher new-home prices,” she said.
The new-home sales report “is indicative of some of these challenges,” Kushi said. “Builders are entering 2022 with backlogs that they are having a hard time completing due to material and labor shortages. And new home prices are sitting near a historic high. Demand for new homes remains strong as there is a lack of existing-home inventory, but rising new-home prices may be pricing out some buyers.”
She added, though, that while the trend for mortgage rates is upward in 2022, there may be an “unintended side effect” from the conflict in Eastern Europe: downward pressure on mortgage rates.
The 10-year Treasury yield was down Thursday, she said, "likely in response to the worsening Russia-Ukraine conflict, and mortgage rates may follow suit."
“Geopolitical events play an important role in impacting the long end of the yield curve and mortgage rates,” Kushi said “For example, in the weeks following the ‘Brexit’ vote in 2016, the U.S. Treasury bond yield declined and led to a corresponding decline in mortgage rates.”
