The housing market continued to cool off from the torrid pace of last year as bad weather and rising costs took a toll in February.
New home sales fell 18.2% last month, compared to January, to a seasonally adjusted 775,000 — a nine-month low. At the same time, median home prices eased 1% to $349,400 nationally, according to government data released on Tuesday.
While both metrics are up from a year ago — new home sales rose by 8.2% and the median price increased by 5.3% — the market is still well off the elevated levels of last year’s second half.
Similar monthly declines took place in existing home sales, which fell by 6.6% in February, down to 6.22 million, according the National Association of Realtors. Still, this represents a 9.1% increase year over year.
Housing bulls are pointing to February’s deep freeze and the natural pause of such a red-hot market as the causes of the slowdown. Housing bears, by contrast, are looking at rising interest rates; increasing lumber costs, which are up 50% year over year; and higher unemployment as signs there are cracks in the foundation.
The truth most likely lies somewhere in between. We anticipate that the trend of suppressed housing will continue in March, especially when looking at the predictive indicator of housing starts, which were lower in February.
Still, overall housing demand is not expected to ease as homebuyers continue to flock to the suburbs in search of more space, and inventories remain at record lows.
The takeaway
As we come out from a bitter and quarantined winter, the summer’s warmth and vaccine-induced optimism will reignite the housing market in the second quarter and beyond.
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