A contractor frames a home under construction in Lehi, Utah, United States on Wednesday, December 16, 2020. Private residential construction in the US rose 2.7% in November.
George Frey | Bloomberg | Getty Images
New home sales declined more than expected in February as home builders faced higher costs and prolonged delays, and consequently raised their prices.
Coupled with the rise in mortgage rates during the month, affordability was a major concern for buyers.
The overall sales figures were disappointing. According to the US Census, the monthly decline fell 18% to its slowest pace since last May. However, some of the tech numbers give more insight into where builders expect their business to go.
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“Although buyer traffic remains strong, home construction is being delayed due to lack of materials,” said Chuck Fowke, chairman of the National Association of Home Builders and contractor from Tampa, Florida. “This is forcing builders and buyers to grapple with rising affordability issues as rising lumber prices have increased the price of a new home by more than $ 24,000.”
Higher interest rates, delivery bottlenecks and rising material prices are weakening affordability and causing the average price for a new home to rise by a little more than 5% annually in February.
There are other, more meaningful data points as well.
According to the Census Bureau, the number of homes sold before construction started rose 20% year over year in February.
This shows that in the context of the broader real estate market, builders are increasingly experiencing delays in the delivery of their products to their buyers. Some of the major public construction companies have stated in earnings releases that they are delaying construction in order not to build while material costs are up to date.
Likewise, the number of homes for sale that have not yet started construction rose 64% in February.
This shows that the builders see the demand ahead of them and anticipate increasing sales, so that they are offering more vacant houses. It also shows how meager the current supply of built homes is.
In the NAHB’s most recent Builder Sentiment survey, the component that measures current sales conditions declined, buyer traffic remained high and stable, and sales expectations rose over the next six months.
“It is a sign that builders will have real demand / traffic over time and expect to be able to expand these potential sales in the future,” said Robert Dietz, chief economist at NAHB. “Demand is strong and may weaken a little on pricing and [interest] Prices. However, there are delays in the construction pipeline due to materials, similar to steel / semiconductor impact on cars. “
While some blame the weather for the decline in new home sales as well as weaker home starts in February, these numbers suggest that sales offices were still busy. Given the epic lack of existing homes for sale, builders who can offer cheaper homes should see strong demand.
“While sales may have been somewhat disrupted in February, it should resume in the coming months as the job market improves, the nationwide distribution of vaccines continues and the shortage of available housing persists,” said Matthew Speakman, economist at Zillow. “New home sales remain well above pre-pandemic levels and the good times should continue into spring and summer despite a weak February.”