January New-Home Sales

New-home sales fall in January as construction delays, affordability hamper builders, but global events may bring lower mortgage rates.

By First American Deputy Chief Economist Odeta Kushi

“Sales of new single‐family homes in January 2022 were at a seasonally adjusted annual rate of 801,000, a 4.5% decline from the December 2021 rate of 839,000. The median sales price of new houses sold in January was $423,300, a 7% increase from December 2021, and a 13.4% year-over-year increase.”

“By stage of construction, the share of completed homes sold was 24.5%, which is down from 26.5% one year ago. The share of homes under construction sold increased from 41.6% to 46%. Clear signals that builders continue to grapple with construction delays due to ongoing supply chain issues and higher material costs.”

“Similarly, the share of completed homes/ready to occupy inventory in January was approximately 9%, which is down from 13.2% a year ago, but up from last month. While the share of new home inventory that is not started increased from 24% to 26% month over month.”

“Affordability remains a challenge, as rising new-home prices may be pricing out some buyers. One year ago, 29% of new-home sales were priced below $300,000. In January of this year, only 9% of new-home sales were priced below $300,000. Rising mortgage rates further worsen affordability.”

“Builders face supply-side headwinds that make it difficult and more expensive to build: a lack of construction materials and appliances, chronic construction labor shortages, and higher input costs. This increases the time needed to build a home and contributes to higher new-home prices.

“Today’s new-home sales report is indicative of some of these challenges. Builders are entering 2022 with backlogs that they are having a hard time completing due to material and labor shortages. And new home prices are sitting near a historic high. Demand for new homes remains strong as there is a lack of existing-home inventory, but rising new-home prices may be pricing out some buyers.”

“While mortgage rates trended upward in 2022, one unintended side effect of global uncertainty is that it often results in downward pressure on mortgage rates. The 10-year Treasury yield is down today, likely in response to the worsening Russia-Ukraine conflict, and mortgage rates may follow suit.”

“Geopolitical events play an important role in impacting the long end of the yield curve and mortgage rates. For example, in the weeks following the ‘Brexit’ vote in 2016, the U.S. Treasury bond yield declined and led to a corresponding decline in mortgage rates.”