Rising Rates Dampening New-Home Sales?

February 27, 2018

New-home sales plunged in the first month of the new year, and some economists blame it on rising mortgage rates that caused home shoppers to pause in January.

Sales of newly built single-family homes dropped 7.8 percent in January month over month to a seasonally adjusted annual rate of 593,000 units, the U.S. Commerce Department reported Monday.

“The moderation in new home sales may be attributable to the interest rate environment, which could be causing a short-term market volatility,” says Michael Neal, senior economist of the National Association of Home Builders. “However, the underlying economic fundamentals for housing demand remain strong, and we expect more prospective home buyers to enter the market in 2018.”

The inventory of new home sales stood at 301,000 in January, which is a 6.1-month supply at the current sales pace. The median sales price of a new home in January was $323,000.

New-home sales did see a 15.4 percent month-over-month uptick in the Midwest in January as well as a 1 percent increase in the West. Sales, however, fell by 14.2 percent in the South and by 33.3 percent in the Northeast.

Despite the January pause in new-home sales in much of the country, homebuilders are remaining optimistic that sales will pick up heading into the spring buying season. Builders are reporting confidence in the overall market and future sales conditions, according to the NAHB’s builder sentiment surveys.

“With strong consumer demand for housing, we expect the sales numbers to move forward in the months ahead,” says Randy Noel, NAHB chairman.

Source: National Association of Home Builders