The Census Bureau reported new home sales for January at a seasonally adjusted annual rate (SAAR) of 764,000. This is the highest level for new home sales since the summer of 2007. The January print for new home sales is also an increase of 18.6 percent from the same time a year ago.

The strong January numbers for new home sales should not be surprising. Declining mortgage rates and major stimulus from the Fed continue to stoke asset inflation in the housing market. I recently detailed how home prices in Denton Texas just hit a new record high in January. The latest numbers from the Census Bureau confirm more of the same for U.S. housing. The median price of a new home spiked $42,800 in January to a new record high of $348,200. The average price of a new home rose $41,200 to $402,300. The supply of new homes dropped 21.5% to 5.1 months of supply in January.

The latest numbers from Census correspond with what we are witnessing in the largest new home market in the country, Dallas-Fort Worth. DFW saw a 34 percent increase in new construction closings in January with a 36 percent increase in pending contracts for new home sales. The supply of new homes in the DFW area dropped 20 percent in January to 4.1 months. The median price of a new home in Dallas-Fort Worth rose 3.2 percent in January to $320,000, while the average price of new construction rose 1.1 percent to $361,803.

Despite the recent uptick in new home prices in the DFW area, median and average prices are still well off the previous highs experienced in 2017. That was the year builders hit a wall in the DFW area in terms of what the market was willing to bear. New home prices were clearly detached from fundamental metrics like wage growth. In the past few years builders in the area have made a concerted effort to reign in prices to improve affordability. Home sales volumes have increased as a result.

Continued increases for new home sales will center on that affordability issue. If the supply of affordable new homes falls too much, sales will eventually suffer. This is certainly a potential problem looking at the second half of the year. Massive Federal Reserve stimulus has certainly goosed the local housing market, and new home sales. If rates are already at record lows and prices are back to new highs there won’t be a whole lot of room for stimulus. With a limited supply of affordable land, builders may find it tough to bring an ample supply of new homes to market.

Today’s new home sales numbers are just another reminder of the liquidity trap we (and when I say we, I mean the Fed) now find ourselves in.

US Median New Home Price January 2020

30-Year Mortgage Interest Rate February 6 2020