New home sales posted the second consecutive month of decline in February as elevated prices and rising mortgage rates deterred buyers.
Sales fell by 2% to 772,000 on an annualized rate, following a sharp 8.4% decrease in January, according to government data released on Wednesday.
The decline, however, did not include the Federal Reserve’s 25-basis-point interest rate hike in March—the first increase since 2018—which will certainly put more pressure on sales.
We expect sales of new homes to decline further for the full year with the market pricing in five to six more rate increases together with a potentially significant reduction of the Fed’s balance sheet to tame inflation.
The interest rate hikes’ impact on mortgage rates is clear. But lower sales won’t necessarily mean a significant drop in new home prices as wages and input prices remain costly for builders.
February’s median price for new homes stayed elevated despite being down to $400,600 from $427,400 in January—above the $400,000 mark for the seventh time in eight months.
Housing affordability will continue to be a problem for Americans as a result of more than a decade of depleted housing supply since the financial crisis, when the housing market collapsed.
New home inventory increased slightly on the month to 6.3 months of supply at the current selling pace, down from 6.1 months. The increase is another sign that the decline in the top-line sales number was because of lower demand.
