New-home sales shattered expectations in January, with the U.S. Census Bureau and Department of Housing and Urban Development announcing a seasonally adjusted annual rate of 923,000 units for the month.
That’s 4.3% above December’s revised pace of 885,000 units, as well as 19.3% above January 2020’s 774,000-unit pace. Reuters reported that a poll of economists placed consensus projections at around 855,000 units.
“Sales of new homes began 2021 right where they left off in 2020, near their highest levels in more than a decade and widely exceeding already optimistic expectations,” said Zillow economist Matthew Speakman on the company’s blog. “As an added bonus, already strong numbers from prior months were revised upward, further adding to the afterglow of what was an extraordinary 2020 — which saw the most new-home sales since 2006.”
The strong January helped lift the average annual sales pace for the last three months to approximately 882,000 units — down from 896,000 during the three-month period ending in December, but a stout figure nonetheless considering the banner fall season and seasonal slowdown during winter.
Uncharacteristically favorable weather seems to have played a factor in January’s solid sales, according to Wells Fargo economist Mark Vitner.
“While new home sales easily beat consensus estimates, January’s overshoot is not all that surprising,” he wrote in the bank’s commentary following the data release. “New-home sales are extremely volatile on a monthly basis and seasonal factors often play an outsized role during the winter months. This would seem to be the case for today’s data, as the weather in December and January was relatively mild, which allowed for more home buying than usual. This is particularly true for the Midwest, where a slight increase in sales translated into a 12.6% seasonally adjusted increase.”
Still, Vitner added, there’s little doubt that new-home sales remain resilient, and market fundamentals remain supportive for further strength. Mortgage rates remain low, a large pool of young prospective buyers is ready to hunt for housing, and historic lows in existing-home inventory have kept demand for new homes high. New-home inventory remains low at just four months’ supply at the current sales pace, with 307,000 new single-family homes for sale, down 6.3% from January 2020.
Low supply has helped keep prices elevated, with the median sales price of $346,000 up 5.3% year over year. Residential builders, however, remain confident in the market, and as the weather improves, supply should see steady, if slow, improvement. There are headwinds, but builders are being flexible to find ways to make progress, said Robert Dietz, chief economist at the National Association of Home Builders.
“Rising building and development costs, combined with recent increases in mortgage interest rates, threaten to exacerbate existing affordability conditions,” he said. “Builders are exercising discipline to ensure home prices do not outpace buyer budgets.”
Wells Fargo did note that it expects a moderation in new-home sales in the next couple of months, with unusually harsh winter weather battering much of the country of late. Particularly, February dealt heavy snowfall to Texas, the nation’s largest new-home market, which figures to dampen sales figures for the rest of the first quarter.
