New Home Sales (Feb.) - Capital Economics
US Housing

New Home Sales (Feb.)

US Housing Market Data Response
Written by Sam Hall
Cancel X

Severe weather, tight inventory and worsening affordability pushed new home sales down to 775,000 annualised in February. And with mortgage rates likely to rise to 4.0% by the end of the year, home sales face strong headwinds. That said, higher savings and the reopening of the economy will support activity and help new home sales end the year at around 830,000 annualised.

Winter storms hit new home sales

  • Severe weather, tight inventory and worsening affordability pushed new home sales down to 775,000 annualised in February. And with mortgage rates likely to rise to 4.0% by the end of the year, home sales face strong headwinds. That said, higher savings and the reopening of the economy will support activity and help new home sales end the year at around 830,000 annualised.
  • New home sales fell by 18.2% m/m in February, the largest month-on-month decline in 7½ years. But at 775,000 annualised, sales were still 8.2% higher than they were at the start of the pandemic. (See Chart 1.)
  • February’s decline in new home sales was driven by severe weather and worsening affordability. While the impact of the winter storms in the South and Midwest will drop out next month, concerns around affordability are likely to grow. We expect the 30-year mortgage rate will rise to around 4.0% by the end of 2021.
  • But interest rates aside, the underlying environment for new home demand looks favourable. A year of lockdowns has boosted household savings, which have been used to bolster down payments. And the reopening of the economy coupled with substantial fiscal stimulus packages will boost incomes.
  • What’s more, a tight inventory has constrained sales over the past year, which means there are likely to be many households that have not been able to buy a home but still want to, even at a higher mortgage rate. Taking these factors into account we think that housing market activity will cool rather than crash this year. (See Update.) After recovering from the impact of severe weather, we therefore expect new homes sales will end 2021 at around 830,000 annualised.

Chart 1: New Home Sales (000s Annualised)

Source: Census Bureau

Table 1: New Home Sales (000s Annualised)

Feb-20

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan-21

Feb

New Home Sales

716

612

570

698

840

979

977

965

965

857

919

948

775

(%m/m)

-7.5

-14.5

-6.9

22.5

20.3

16.5

-0.2

-1.2

0.0

-11.2

7.2

3.2

-18.2

Homes for Sale

327

330

323

311

300

291

285

287

285

291

299

304

312

Months’ Supply

5.5

6.5

6.8

5.3

4.3

3.6

3.5

3.6

3.5

4.1

3.9

3.8

4.8

Source: Census Bureau


Sam Hall, Assistant Property Economist, sam.hall@capitaleconomics.com