New home sales dropped 4.5% in January as high prices and increasing mortgage rates slowed demand, according to data from the Census Bureau on Thursday. The omicron variant and colder-than-usual weather in January also contributed to the decline.
As a result, inventory levels increased to 6.1 months of supply from 5.6 months at the current selling pace, with 406,000 homes available at the end of the month.
Most of the declines came from sales of completed homes and those under construction, while the not-started category had a sharp rise on the month.
Even with an easing of demand, the median price for new homes in January rose for the first time in three months, by 7% to $423,300. While sales of homes in the lower price range declined, homes that are $500,000 and above rose 33% on a non-seasonally adjusted basis.
It is important to note that the data on new home sales is often volatile and receives significant revisions in later reports. December’s reading was revised upwardly to 839,000 from 811,000.
Despite the choppiness in sales data, the market for new homes has moved back to its pre-pandemic upward trend from 2010 to 2019, after a period of robust demand in late 2020 and early 2021.
We should expect the trend to continue in the coming months as demand remains solid while supply is catching up.