The demand for new homes continues to be high as Americans take advantage of low interest rates and flee cities in search of more room.
Sales of new homes in January increased by 4.3% month over month, exceeding expectations and climbing to a seasonally adjusted annual rate of 923,000, the Commerce Department reported on Wednesday.
At the same time, the prices that buyers paid eased somewhat, to a median of $346,400. When this growth rate in new home sales is compared to existing home sales, which rose just 0.6% to 6.69 million in a shortage of supply, it is clear that the demand is coming in from buyers of new homes.
This continued demand has homebuilders’ confidence riding high, with the National Association of Homebuilders Index at 84.
But while the low interest rates are expected to buoy demand throughout the year, there are headwinds as lumber prices have increased by about 46% year over year, according to the U.S. Producer Price Index’s category of lumber and plywood. In addition, as vaccines continue to be dispersed and fears of city living subside, demand for multifamily rentals should return.
The takeaway
New home sales continue to grow and will remain strong throughout the year, but we expect the growth rate to ease as the increase in costs and shifts in demand strengthen in the second half of the year.
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