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  New Single-Family Home Sales Declined 11.0% in November
Posted Under: Data Watch • Home Sales • Housing
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Implications:  November's report on new home sales was a big disappointment, with sales coming in below even the most pessimistic forecast by any economics group.  Not only did sales fall 11%, but several previous months were revised down as well, making November's drop the fourth decline in a row.  That said, looking at 2020 as a whole shows a much more encouraging picture.  Even with the recent declines, new home sales are still 8.7% above the January pre-pandemic high and are on pace to post the best annual sales pace since 2006.  As impressive as new home sales have been throughout the pandemic, it looks like the lack of finished new homes waiting for buyers has begun to put the brakes on a further recovery.  In the past year, the only portion of the inventory of unsold new homes that has increased are homes where construction has yet to start.  Meanwhile, the inventory of unsold homes that are either under construction or finished is down from a year ago.  Overall, while the number of new single-family homes started is up 27.1% from a year ago, the inventory of new homes available for sale is down 11.2% over the same period, illustrating just how strong demand has been so far in 2020.  Given the downward pressure that social distancing regulations, shortages of labor, supply chain issues, and now cold weather continue to exert on new construction, it will be difficult to satisfy this demand in the short run.  However, as the pandemic ebbs in 2021 due to widespread vaccine distribution and warmer weather as we enter the Spring, many of these impediments will fade.  And with more inventory available, we expect demand will remain strong and push sales higher in 2021. Why?  First, affordability; near zero interest rates from the Federal Reserve have helped reduce 30-year fixed mortgage to record lows.  Second, due to the pandemic, closures, and urban unrest, buyers' preferences have shifted away from units in denser urban environments, toward more spacious options in the suburbs, where most new single-family homes are built. While some portion of this effect will reverse as we return to "normal," we expect many buyers who have their minds set on a single-family home will follow through. In other recent housing news, the FHFA index, which measures prices for homes financed by conforming mortgages, rose 1.5% in October and is up 10.2% from a year ago, a major acceleration from the gain of 5.5% in the twelve months ending in October 2019.  The 10.2% gain versus a year ago is the largest year-to-year increase since the housing bubble in the 2000s.

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Posted on Wednesday, December 23, 2020 @ 11:54 AM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
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