After a slight rebound in December and January, the slowing of the pace of new single-family home sales continued in February as a combination of broader affordability challenges – higher rates and more costly materials – and storm effects reduced the volume of purchases. New single-family home sales declined 18% in February to a 775,000 seasonally adjusted annual rate, according to estimates from the Census Bureau and HUD. After sales exceeded construction starts by a historic margin at the end of the summer, the pace of sales has now slowed back to the post-Great Recession trend, which is limited by availability of lots, labor, lumber and other building inputs.
However, the February sales rate was 8% higher than a year ago, as housing demand continues to be supported by relatively low interest rates, a continued consumer focus on the importance of housing, and solid demand in lower-density markets like suburbs and exurbs. Housing affordability headwinds will increase in 2021 however, due to price growth connected to more expensive building materials and mortgage rates trending higher. Indeed, mortgage rates are up more than 30 basis points over the last five weeks per Freddie Mac estimates.
Looking back to the spring of last year, the April 2020 data (570,000 annualized pace) marked the low point of sales for the 2020 recession. The April rate was 26% lower than the prior peak, pre-recession rate set in January. Sales then mounted a historic surge from April until July, outpacing gains in actual construction.
Sales-adjusted inventory levels increased in February 2021, coming in at a still lean 4.8 months’ supply. Inventory by count increased in February, but is 4.6% lower than a year ago. Moreover, the count of new homes offered for sale that have not started construction has increased 67% over the last year, rising from 52,000 to 87,000. The count of completed, ready-to-occupy homes stood at just 42,000 in February. The rise in inventory of homes not started construction, and declines for the other categories, reflects the challenges for supply-chains that are affecting builders across the nation.
Housing affordability headwinds are rising for 2021, due to supply-side challenges such as elevated lumber costs and prospects for increased regulatory burdens associated with land development and building. The median sales price in February was $349,400, a 5.3% gain from a year earlier. Price discipline will be key for 2021 volume growth, given rising material costs.
Regionally, new home sales on a year-to-date basis (just the first two months of the year) are 25% higher in the Midwest, 23% higher in the South, 6% higher in the Northeast and 9% lower in the West.