New home sales softened in February with higher interest rates and record high prices. It didn’t help that many markets in the U.S. are still sitting on record low inventories. The Census Bureau reported new home sales for the month of February at a seasonally adjusted annual rate of 775,000 units. That was well below forecasts, but previous months were revised higher.
The median price of a new house sold in February 2021 was $349,400. The average sales price of a new home reached a new record high of $416,000. Combine those high prices and rising mortgage rates, and you have the recipe for declining home sales. Not too difficult to understand, but there were plenty of pundits blaming cold winter weather in February for softer home sales. Maybe the combination of weaker existing home sales and new home sales will put that false narrative to rest. Who are we kidding.
The year-over-year comparisons are going to be pretty favorable for March and April, but the rest of the year is going to be challenging. If rates remain above 3 percent, March and April could be sluggish as well. The reality is that the Fed pulled demand forward in a big way with the Covid bailouts. Now we’re left sorting out the distortions with inventory, prices and mortgage rates.
New home sales were extremely soft in North Texas last month. Denton County saw a 33 percent decline in new construction sales, with a 23 percent decline in pending new home sales (aka contracts). The sharp drop in new home sales had little to do with the February freeze and more to do with record low new home inventory. There’s nothing left to buy! Denton County is sitting on just 1 month of supply when it comes to new homes. It’s the same for Collin County. Tarrant and Dallas counties are sitting on 1.6 and 1.9 months of inventory respectively. These are much lower inventory figures than what the Census is describing.
Who could have imagined that pouring $trillions in poorly directed liquidity into a corrupt financial system would lead to unintended consequences in the real estate market.
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