Sales of new U.S. homes retreated in January after a flurry of purchases at the end of 2021, indicating a jump in mortgage rates may be starting to restrain demand.
Purchases of new single-family homes decreased 4.5% to a 801,000 annualized pace following a revised 839,000 in December, government data showed Thursday. The median estimate in a Bloomberg survey of economists called for an 803,000 rate.
While underlying demand for new homes remains solid, fueled in part by record low inventory in the resale market, the highest mortgage rates since mid-2019 represent a headwind. Higher materials costs are also contributing to housing inflation and sidelining many prospective buyers.
A further moderation in sales may help builders chip away at construction backlogs that are still elevated due to supply and transportation delays.
Supply-side challenges “were compounded by additional pressure from the omicron wave” last month, Doug Yearley, chief executive officer at Toll Brothers Inc. said Wednesday on the homebuilder’s earnings call. “It is taking us approximately two months longer to deliver a home today versus one year ago.”
Still, the company reported better-than-expected orders amid robust demand for large and high-end houses in the suburbs.
The new-home sales report, produced by the Census Bureau and the Department of Housing and Urban Development, showed the median sales price of a new home rose 13.4% from a year earlier to $423,300.
There were 406,000 new homes for sale as of the end of January the most since 2008 — though about 26% of those houses were not yet started. At the current sales pace, it would take 6.1 months to exhaust the supply of new homes. That compares with 3.6 months a year ago.
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The number of homes sold in January and awaiting the start of construction — a measure of backlogs – rose from a month earlier to 237,000. The total number of homes sold with construction under way eased to 368,000.
Sales declined in three of four U.S. regions. Purchases slumped 10.7% in the Northeast, fell 7.4% in the South and dropped 3.7% in the Midwest.
Stephen Stanley, chief economist at Amherst Pierpont Securities, said in a note that unfavorable weather may have held back home sales.
Separate data out last week showed purchases of previously owned homes, which account for the majority of the market, jumped last month to a one-year high on strong demand and a rush to get ahead of rising rates.
New-home purchases account for about 10% of the market and are calculated when contracts are signed. They are considered a timelier barometer than purchases of previously-owned homes, which are calculated when contracts close.
The new-homes data are volatile; the report showed 90% confidence that the change in sales ranged from a 20.7% decline to a 11.7% increase.