New Home Sales Start New Year on Strong Note

January new home sales offered good news for an industry starved of good news as of late.

HUD and the Census Bureau reported Friday sales of new single‐family houses in January rose to a seasonally adjusted annual rate of 670,000, 7.2 percent higher than the revised December rate of 625,000. However, sales were still down by 19.4 percent from a year ago (831,000).

Regionally, results were mixed, with weather most likely the culprit. Nearly all of the month’s improvement took place in the South, where sales jumped by 17.1 percent to 451,000 units in January, seasonally annually adjusted, from 385,000 units in December. From a year ago, sales in the South dropped by 2.2 percent.

Courtesy HUD, Census Bureau.

In the West, sales fell 7.3 percent in January to 127,000 units, seasonally annually adjusted, from 137,000 units in December and fell by nearly 47 percent from a year ago. In the Midwest, sales fell by nearly 7 percent to 67,000 units in January from 72,000 units in December and fell by 34.3 percent from a year ago. In the Northeast, sales fell by 19.4 percent in January to 25,000 units from 31,000 units in December and fell by nearly 14 percent from a year ago.

“Builders are not only using incentives to bolster sales, such as rate buydowns, paying points and offering price reductions, but also offering upgrades on appliances and other quality features, essentially giving the buyer more home for the same amount of money that they had originally contracted for,” said Odeta Kushi, Deputy Chief Economist with First American Financial Corp., Santa Ana, Calif.

By contrast, last week the National Association of Realtors reported existing home sales fell in January for the 12th consecutive month. “Existing homeowners are sitting on cheap mortgages and are reluctant to cut prices,” Kushi said “Builders doing what’s necessary to move inventory, and it’s working…Not to mention that the inventory of existing homes for sale remains very low, and a new home, at the right price, is a pretty good substitute.”

Charlie Dougherty, Economist with Wells Fargo Economics, Charlotte, N.C., agreed. “The recent strength stands in sharp contrast to ongoing weakness in existing home sales, which suggests that builders have been successful using rate buy-downs and price discounts to sell homes in the challenging affordability environment,” he said.

Kushi noted higher builder costs remain a headwind to building more entry-level homes. “The new home sales market continues to face headwinds from ongoing supply-side headwinds and affordability challenges, especially as rates now once again drift higher,” she said. “Prices may need to continue to adjust down and builders will likely continue incentives to entice buyers.”

HUD/Census reported the median sales price of new houses sold in January rose to $427,500; the average sales price rose to $474,400. The seasonally adjusted estimate of new houses for sale at the end of January fell to 439,000. This represents a supply of 7.9 months at the current sales rate.