Modest growth may not seem like much, but in the age of COVID-19, the slight April rise in new-home sales was enough to completely shatter previously dire projections.
New-home sales grew 0.6% month over month to a seasonally adjusted annual rate of 623,000 in April, according to estimates from the U.S. Census Bureau and the Department of Housing and Urban Development. While the figure is 6.2% below the April 2019 new-home sales number of 664,000, some economists had predicted sales to plummet more than 20% monthly, so any improvement — however scant — registers as a major victory for the housing market.
Despite the recent instability wrought by the coronavirus pandemic, new-home sales are now 1.4% higher through April than in the first four months of 2019.
“The coronavirus pandemic has generated any number of nasty surprises over the past few months, but the unexpected strength in April new home sales may be the first pleasant surprise yet — and the clearest indicator so far that housing, so unlike the last time around, will be a source of relative strength during this downturn,” said Zillow economist Matthew Speakman.
“The April data for new home sales show the potential for housing to lead any recovery for the overall economy,” concurred Dean Mon, chairman of the National Association of Home Builders (NAHB). “Because the housing industry entered this downturn underbuilt, there exists considerable pent-up housing demand on the sidelines. The experience of the virus mitigation has emphasized the importance of home for most Americans.”
New-home sales were likely supported by the use of price incentives in April, reported NAHB chief economist Robert Dietz. According to NAHB data, two out of ten builders used such strategies, and April’s median home price, down 8.6% year over year to $309,900 in April, reflected the moves.
With builders being proactive in spurring sales — especially for the important middle price tiers of the market — and their confidence in the market on the uptick, Speakman said that the early signs of market stabilization are beginning to surface. Indeed, new home sales are a more current indicator of activity than existing-home numbers, and according to a report from Wells Fargo’s Economic Group, builders reported brisk traffic throughout most of April.
Dietz did caution that the discrepancy between forecasts and Census estimates suggests the possibility of a downward revision of April’s numbers in May’s report. Still, with the Mortgage Bankers Association, too, reporting recent gains in mortgage applications, the surprisingly rosy new-home sales numbers lend credence to the thinking that, as states continue to reopen, the housing market’s worst may be in the rearview.
And newly built homes may be an unexpected beneficiary of shifting homebuyer priorities, Speakman added.
“The pandemic is almost certain to alter consumer preferences going forward, and a new appreciation for cleanliness and safety might sway more buyers to seek newly constructed, never-lived-in homes in the near future. … There is still a ways to go before we’re completely out of the woods, but today’s report is a huge step in the right direction,” said Speakman.
Inventory continues to remain tight but “reasonably healthy,” per Dietz, with the seasonally-adjusted estimate of new houses for sale at the end of April at 325,000, down 3% from April 2019. That estimate represents a supply of 6.3 months at the current sales rate.