New Home Sales on the Rise 4.3% in January

New home sales continued the turnaround, started in
December, that ended three straight months of slowing sales. The U.S. Census
Bureau and Department of Housing and Urban Development said newly constructed
homes were sold in January at a seasonally adjusted annual rate of 923,000
units. This is an increase of 4.3 percent compared to the upwardly revised
(from 842,000) rate of 885,000 in December and 19.3 percent above the estimate
of 774,000 units in January 2020.

Analysts polled by Econoday had projected sales to be
flat compared to the December estimate, in a range of 809,000 to 905,000 units.
Their consensus was 855,000 annualized sales.

Robert Dietz, chief economist for the National
Association of Home Builders, said “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 January was $346,400, a 5.3% gain from a
year earlier.
Price discipline will be key for 2021 volume growth, given rising
material costs.”

Sales for the month were estimated at 70,000 homes on
a non-seasonally adjusted basis. The estimate for December was 59,000 units.

The median price of a home sold during the month, as Dietz
said, was $346,400 and the average was $408,800. In January 2020, the respective
prices were $328,900 and $384,000.

The report estimates there were 307,000 new homes
available for sale at the end of January. This is estimated at a 4.0-month
supply at the current sales pace compared to a 4.1-month supply in December and
5.0 months of inventory the prior January.

Sales in the Northeast fell 13.9 percent compared to
December and were 8.8 percent below their level a year earlier. The Midwest saw
increases of 12.6 percent and 10.3 percent from the two earlier periods. There
was a 3.0 percent month-over-month gain in the South and sales jumped 40.4
percent on an annual basis. The West had 6.8 percent more sales than in
December, but 6.3 percent fewer year-over-year.


Mortgage rates climb higher to 2.97%

The average mortgage rate for a 30-year fixed loan is now just 3 basis points away from 3%, after a 16 basis point jump last week pushed mortgage rates to 2.97%, according to Freddie Mac’s Primary Mortgage Market Survey.

The average mortgage rate hasn’t risen this high since the end of July 2020, but Sam Khater, Freddie Mac’s chief economist, noted higher rates signals an economy slowly regaining its footing.

“Though rates continue to rise, they remain near historic lows,” said Khater. “However, when combined with demand-fueled rising home prices and low inventory, these rising rates limit how competitive a potential homebuyer can be and how much house they are able to purchase.”

Rising rates didn’t slow new home sales in January though, after the U.S. censes bureau reported sales of new single-family houses in January were at a seasonally adjusted annual rate of 923,000 — 4.3% above December’s rate.

“However, recent increases in mortgage interest rates threaten to exacerbate existing affordability conditions. Builders are exercising discipline to ensure home prices do not outpace buyer budgets,” said National Association of Home Builders Chief Economist Robert Dietz.

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While purchase demand hasn’t shown any sign of decline, the refi wave is showing more vulnerability. As rates rose, refi activity fell 11% according to data from the Mortgage Bankers Association.

For many potential borrowers, the opportunity to refinance is lost before the chance even arises, while other prospective borrowers are caught in a clogged loan pipeline and don’t get the opportunity to lock in that low rate.

According to HousingWire’s lead analyst Logan Mohtashami, a one-eighth to a quarter turn in mortgage rates (high or low) can move the market substantially.

“There are people who had a 4.00% rate that refinanced to 3.25% and then said, ‘Oh well now that rates are low, I’ll refinance again to 2.75%.’ But if that rate sneaks up a quarter it’s no longer ideal and it’s lost its appeal. They are going to wait for it to come back down, right? And then it doesn’t,” Mohtashami said.


Buyer Demand Shores Up Builder Confidence

After dropping from record high levels by a total of 7
points over the last two months, the index that measures home builder
confidence has stabilized.
The Housing Market Index (HMI), produced by the
National Association of Home Builders (NAHB) and Wells Fargo, rose 1 point in
February to 84.

“Demand conditions remain solid due to demographics, low mortgage rates and
the suburban shift to lower cost markets, but we expect to see some cooling in
growth rates for residential construction in 2021 due to cost factors, supply
chain issues and regulatory risks,” said NAHB Chief Economist Robert Dietz. “Some builders are at capacity and may not be able to expand production due to
these headwinds

“Lumber prices have been steadily rising this year and hit a record high in
mid-February, adding thousands of dollars to the cost of a new home and causing
some builders to abruptly halt projects at a time when inventories are already
at all-time lows,” said NAHB Chairman Chuck Fowke. “Builders remain very
focused on regulatory and other policy issues that could price out households
seeking new homes in a tight market this year.”

NAHB surveys its new home builder members each month, asking for their perceptions
of current single-family home sales and sales expectations for the next six
months as “good,” “fair” or “poor.” The survey also asks builders to rate
traffic of prospective buyers as “high to very high,” “average” or “low to very
low.” Scores for each component are then used to calculate a seasonally
adjusted index where any number over 50 indicates that more builders view
conditions as good than poor.

The component measuring current sales conditions was unchanged from January
at 90, while the component measuring sales expectations in the next six months
fell 3 points to 80.
The index charting traffic of prospective buyers rose 4
points to 72.

Regional scores are given as three-month moving averages. The score in the Northeast
rose 2 points to 78 and the Midwest declined 1 point to 81. Both the South and
the West lost 2 points to 84 and 93, respectively.


Higher building material costs could push new home prices up

New home sales fell slightly at the end of 2020 due to higher prices offsetting the strong demand from buyers that was seen throughout the year, according to data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

Although sales of new homes grew 1.6% in December, we saw much stronger sales growth in the preceding months, the National Association of Home Builders said in a blog post.

Throughout 2020, new home sales rose by 18.8% compared to the year before.

“While the market remains solid, median home prices are increasing due to higher building material costs, most notably softwood lumber, and a shift to larger homes,” said Robert Dietz, chief economist of the NAHB.

The NAHB reported that the median sales price of a new home in December was $355,900, compared to a median sales price of $329,500 in the same month one year ago.

Moreover, NAHB Chairman Chuck Fowke said that the affordability of new homes could be negatively impacted by increased regulatory burdens in 2021, as well as more increases in the cost of building materials.

In any case, reduced sales will at least have a positive impact on the available inventory of new homes, which currently stands at just 4.3 months supply at the current sales pace, down 19% from where it was a year ago.

Across the country, new-home sales saw the largest gains for all of 2020 in the Midwest, up 24.2%, followed by a 21.2% gain in the Northeast, an 18.9% increase in the West, and a 17.6% increase in the South.


Home-Builder Confidence Slips From Record High in December, as Buyers Get Cold Feet

The numbers: The construction industry’s outlook worsened slightly in December, according to research from a trade group released Wednesday.

The National Association of Home Builders’ monthly confidence index dropped four points to a reading of 86 in December, the trade group said. This was the first time that the index had dropped after three consecutive months of record highs. Even with December’s decline, the figure represents the second-highest reading in the index’s history.

Index readings over 50 are a sign of improving confidence. The index had fallen below 50 in April and May in the immediate wake of the pandemic.

What happened: The three main indicators that guide the overall index all decreased by four points from November’s reading.

The index that measures sentiment regarding prospective buyer traffic came in at 73. The index of expectations for future sales over the next six months dropped to 85, and the gauge of current single-family home sales slipped to 92.

Sentiment also declined across all parts of the country. The index fell by three points in Northeast, Midwest and South, and by two points in the West.

The big picture: The housing market has remained a bright spot in the economy throughout the pandemic, and despite the monthly decline in December the home-building industry remains on strong footing. That said, builders are responding to buyers who appear to be cooling on the market.

To some extent, this could be a reflection of buyers growing accustomed to low mortgage rates, meaning that cheap financing is no longer providing the same boost to the market. At the same time, rising home prices across the country could be negating some of the benefit of lower interest rates.

While the rollout of vaccines to combat the coronavirus is good news for the economy, it could end up causing a slowdown in the housing market. “As the economy improves with the deployment of a COVID-19 vaccine, interest rates will increase in 2021, further challenging housing affordability in the face of strong demand for single-family homes,” Robert Dietz, chief economist at the National Association of Home Builders, said in the report.

Dietz also noted that issues such as the availability of land and skilled labor “will continue to place upward pressure on construction costs,” which could price even more buyers out of the market.

What they’re saying: “There is still an immense undersupply of all types of housing, particularly affordable rental housing which may keep multifamily construction from slowing too much,” Sam Bullard, managing director and senior economist at Wells Fargo Corporate and Investment Banking, wrote in a research note earlier this week.

“Fewer builders are reporting improved [year-over-year] traffic quality than earlier in 2020, which may be a sign of decreased customer urgency, or builders may have worked through a significant number of highly-qualified customers already,” home-building analysts at BTIG wrote in their monthly home builder survey report.


Home Builder Confidence Surges to New Record High as Sales Volume Grows

The numbers: The construction industry’s outlook improved again in November, according to research from a trade group released Monday.

The National Association of Home Builders’ monthly confidence index rose five points to a reading of 90 in November, a record high, the trade group said Tuesday. It is the fourth consecutive month that the index has hit a new record high.

Index readings over 50 are a sign of improving confidence. Back in April and May, the index dropped below 50 as pandemic concerns mounted.

What happened: The index that measures sentiment regarding current sales conditions increased six points to 96, while the index of expectations for future sales over the next six months rose one point to 89. The gauge regarding prospective buyers increased three points to 77.

At a regional level, though, confidence varied. The indexes for the Midwest, South and West all increased, led by a nine-point gain in the Midwest. But in the Northeast the index dropped fives point to 82.

“In the short run, the shift of housing demand to lower density markets such as suburbs and exurbs with ongoing low resale inventory levels is supporting demand for home building,” Robert Dietz, chief economist at the National Association of Home Builders, said in the report.

The report was based on survey responses, most of which were collected before the presidential election was called for former Vice President Joe Biden on Nov. 7. December’s report will more fully capture the reactions of the home-building sector to the election.

The big picture: Builders’ optimism is an indication of the continued strength of the housing sector. While recent data, including mortgage application figures from the Mortgage Bankers Association, suggest that buyers are pumping the brakes on making deals, that’s not a cause for concern for builders. Rather, it’s a sign that seasonality is kicking in after a delayed spring and summer home-buying season continued into the early fall.

The conditions that make buying a newly-built home right now appealing are still present — and should be for some time. Even if mortgage rates increase because of a coronavirus vaccine, economists expect them to remain low by historical standards. And while Americans’ interest in the suburbs has grown, the supply of existing homes for sale has not. That leaves an opening for home builders.

“The strength in the housing market likely has legs, as it will take quarters and likely years for builders to catch up with the one-time spike in demand for single-family homes,” Stephen Stanley, chief economist at Amherst Pierpont, said in a research note last week after D.R. Horton released its quarterly earnings.

What they’re saying: “The October retail sales and industrial production reports, together with the November homebuilder survey, capture activity in the three strongest parts of the economy. But they have nothing to say about the deteriorating picture in the discretionary services sector, which is being hammered by the third COVID wave,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a research note.

“The signal from the weekly mortgage purchase applications index is also one of some slowing in momentum,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, wrote in a research note.

Market reaction: The Dow Jones Industrial Average and the S&P 500 index were down Tuesday morning following the disappointing retail sales report.


Covid-19 vaccine rollout could lead to higher inventories and lower prices

Covid-19 vaccines are now being rolled out in the U.S., and their introduction could soon impact on the trajectory of the housing market, experts say.

Some say that more housing inventory will arrive on the market in the coming months as the vaccination campaign gathers momentum. They believe that many would-be home sellers are delaying selling their homes until the pandemic recedes.

“As the risk of serious illness declines because more people are vaccinated, we expect to see more sellers,”’s chief economist Hale said. That would be welcome news for home buyers who are finding limited choices. Last week, it was reported that housing inventories hit an all-time low in December as buyer demand continued to be elevated.

As well as existing homes, we should see more new homes come onto the market too. Robert Dietz, chief economist of the National Association of Home Builders, told that builders could construct one million single-family homes and townhomes this year.

If the housing supply increases, that could relieve the pressure on prices, which have seen double-digit annual gains in recent months.

“As the economy picks back up and people are no longer afraid to be within 6 feet of one another, they’ll get new jobs, promotions, and raises,” reported. “That will give them the cash they need to become homeowners or trade up to a larger abode.”

Experts say that as the pandemic fades away we could also see cities regain some of their lost residents. Populations in several big cities decreased during the pandemic as people moved to the suburbs or rural areas, where more space is available.

This has led to a “dramatic reset in affordability” said real estate appraiser Jonathan Miller. “It’s starting to trigger interest from younger renters who were priced out and unable to enter the market.”

Even so, the suburbs will remain popular with buyers that want more space for less money, a trend that experts don’t believe will disappear, especially with remote work set to stay.

“Single-family homes in the suburbs will clearly be favored over the condominiums in downtown, city centers,” said Lawrence Yun, chief economist of the National Association of Realtors. “People may seek out more distant suburbs.”


Rising costs, COVID cases dip builder confidence

Homebuilder confidence in the U.S. fell to a four-month low in January as builders expressed concerns about higher house prices, COVID-related supply chain issues and construction costs.

Builder confidence in single-family homes dropped to 83 in January from 86 in December, according to the National Association of Home Builders and Wells Fargo Housing Market Index. It’s the second straight monthly decline in sentiment.

Rising material costs, in particular lumber, pushed sentiment down. A resurgence of coronavirus cases also contributed to the weakening number. But builder sentiment overall remains strong, per NAHB officials.

“Despite robust housing demand and low mortgage rates, buyers are facing a dearth of new homes on the market, which is exacerbating affordability problems,” said NAHB Chairman Chuck Fowke, a custom home builder from Tampa, Florida. “Builders are grappling with supply-side constraints related to lumber and other material costs, a lack of affordable lots and labor shortages that delay delivery times and put upward pressure on home prices.”

The HMI index gauging current sales conditions dropped two points to 90, while the component measuring sales expectations in the next six months fell two points to 83. The gauge charting traffic of prospective buyers decreased five points to 68.

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Regionally, the West remains at the top of the HMI confidence scoresheet with an astonishing 95 points – a near-perfect score in terms of builder confidence, even though it’s down one point from December. The South fell one point to 86, the Northeast fell six points to 76, and the Midwest was up two points to 83.

“While housing continues to help lead the economy forward, limited inventory is constraining more robust growth,” said NAHB Chief Economist Robert Dietz. “A shortage of buildable lots is making it difficult to meet strong demand and rising material prices are far outpacing increases in home prices, which in turn is harming housing affordability.”

Dietz said in September that higher lumber prices are adding about $16,000 to the cost of a new house. But the pandemic hit the lumber industry hard – approximately 6,000 jobs were lost as a result of the ensuing economic turmoil.

“Growing demand for lumber met insufficient supply, and the result has been escalating prices,” Dietz said.

Inventory has been an issue for real estate agents and brokers since early 2020, as well. Even prior to the pandemic, housing inventory had hit record lows. Total home sales are outpacing new listings by a wide margin every month, and real estate tech company Homesnap foresees the shortage continuing in 2021 unless more sellers enter the housing market.

The month of December saw the largest year over year decline of housing inventory in almost three years, with inventory declining 12%, according to