New home sales soar while inventories plummet
Wednesday, February 26, 2020
If you can’t buy ‘em, build ‘em. With inventories of existing homes for sale at their lowest levels in years, would-be homebuyers are turning to the new home market in droves.
New housing starts and permit requests have increased by double digits compared to a year ago, and sales of new homes in January were up substantially following three months of decline. Whether this is the beginning of trend or just a temporary bump remains to be seen.
During the last quarter of 2019, monthly new home sales growth dipped slightly below the break-even point on a month-to-month basis. In January, according to the initial figures from the U.S. Census Bureau, new home sales rocketed up nearly 8%, compared to December, and were up nearly 19% from the previous January. At the same time, requests for single-family new home permits also jumped 6.4% from the previous month.
Driving this shift toward new homes is the escalating price of existing homes combined with an insufficient supply of homes for sale to meet demand. The same low mortgage rates that are bringing more potential buyers into the housing market also are prompting existing homeowners to refinance their mortgages and remain in their current homes rather than face higher payments with a more expensive property. As mortgage rates hit their lowest level in nearly four years in January, refinance applications catapulted 15% in just one week to a level 183% higher than in January 2019, reports CNBC.
As a result, the inventory of existing homes for sale in January, while up 2.2% from December, was at its lowest level for the month since 1999, according to the National Association of Realtors (NAR). Redfin stated that active listings in the 85 metro areas it tracks fell 11.4% year-over-year, the biggest decline since March 2013.
Putting further pressure on inventories, single-family new home starts dropped 5.9% for the month and completions were down 3.5%.
Having retreated momentarily last fall, home prices have been rising again in recent months fueled by tighter inventories and more affordable borrowing. The median price for all existing homes sold in January was up nearly 7% from a year ago, said the NAR, and nearly 6% for single-family homes. Redfin reported a similar year-over-year increase, but found prices softened a bit month-over-month, by just under 2%, due to weak sales in a few metro areas.
Although new home sales rose substantially in January, so, too, did new home prices. The U.S. Census Bureau relates the median price of a new home sold in January was $348,200 (up more than 5% from December) and the average price was $402,300 (up 4.6%). When comparing those figures with the median price of existing homes sold ($268,300) reported by the NAR or of all homes sold ($306,400) reported by Redfin, one has to wonder how long the new home market can sustain growth before either prices or sales begin to tumble
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