 | New Single-Family Home Sales Increased 4.3% in January |
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| Posted Under: Government • Home Sales • Housing • Interest Rates • COVID-19 |
Implications: New home sales surprised to the upside in January, rising for a second consecutive month following the slowdown seen late last year. Sales are now up 19.3% from a year ago, illustrating the resiliency of the housing market. A shift in buyer preferences is a big part of that story, with pandemic restrictions and significant changes in corporate work-from-home policies giving workers both the urgency and ability to seek out more spacious options in the suburbs. Moreover, there seems to be significant regional factors at play, with sales in the South up 40.4% over the past year while both the Northeast and West have posted declines. It looks like differences in lockdown policies led some to vote with their feet. That said, even for those looking to move the lack of finished new homes waiting for buyers remains a headwind for even faster sales growth. In the past year, the only portion of new homes inventory that has increased comes from homes where construction has yet to start. Unsold homes that are either under construction or finished continue to see inventories decline from a year ago levels. How significant are these movements? While the number of housing starts for single-family homes is up 17.5% from a year ago, the inventory of completed new homes available for sale is down a massive 44.7% over the same period, illustrating just how strong demand was in 2020. The good news is that there are signs builders are responding, with the number of single-family homes currently under construction and permits issued for future construction sitting at the highest levels since 2007 and 2006, respectively. And as more homes become 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 keep 30-year fixed mortgage near record lows. Second, even as pandemic restrictions are removed and life returns to "normal," recent changes towards work-from-home policies are unlikely to fully reverse, and buyers who have their minds set on a single-family home will follow through as more options become available. In recent housing news, the Case-Shiller national home index increased 1.3% in December and climbed 10.4% in 2020, the largest calendar-year increase since 2013. Price gains in 2020 were led by Phoenix, Seattle, and San Diego. The slowest price gains were in Las Vegas, ravaged by temporary weakness in the travel and gaming industries, as well as Chicago. The FHFA index, which measures prices for homes financed by conforming mortgages, increased 1.1% in December and was up 11.4% in 2020, the largest increase for any calendar year on record (going back to 1991). On the manufacturing front, the Richmond Fed index, a measure of mid-Atlantic manufacturing sentiment, remained unchanged in February at a healthy reading of 14, signaling solid growth in manufacturing for the month.
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