Markets never travel in a straight line, and sales of new homes are no exception.
A variety of factors contributed to a slight decline in the sale of new homes around the country last month.
According to data recently released by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau, in January 2022, sales of newly built, single-family homes around the country fell by 4.5% from their pace in December. Granted, the December 2021 reading had been revised sharply upward, but this was a 19.1% drop from January 2021.
As always, forces are pulling and pushing the market in different directions. For example, the gradual rise of interest rates, which were at a historical low, makes it harder for the average American household to afford a mortgage.
Meanwhile, due to persistent supply chain problems, inflation and the cost of materials increases the price of construction and new homes.
Still, the demand for new homes remains strong and has been met with more new homes on the market. According to the National Association of Home Builders (NAHB), the inventory of new single-family homes in the United States was up 34.4% in January compared to the same time last year, increasing to 6.1 months’ worth of supply. However, this was not enough. Of the seasonally adjusted 406,000 homes available for sale in January, barely 9% (37,000) are completed and ready to be occupied.
These factors combine to exert upward pressure on prices. In addition, according to the NAHB, the median sales price for a new single-family home rose to $423,300 in January from $395,500 in December, and is up more than 13% compared to a year ago.
All is not lost though, as the market remains steady. Total sales in January reached a seasonally adjusted rate of 801,000, reflecting the number of sales that would occur if the rate continues for the remainder of the year.
Furthermore, sales did not drop everywhere. While new home sales were down 10.7% in the Northeast, 3.7% in the Midwest and 7.4% in the South, the West was a different story, with an increase of 1.2%.