February New Home Sales: A Temporary Pause?

• February new home sales fell 18.2% from January, to 775,000 (SAAR), according to the U.S. Census Bureau. Sales were up 8.2% from February 2020.
• The median sales price of new houses sold in February 2021 was $349,400, up 5.3% from a year ago.
• There were an estimated 312,000 (seasonally adjusted) new homes available for sale nationwide in February, up 2.6% from January but down 4.6% year-over-year.

The setback in February new home sales wasn’t entirely unexpected, given last month's harsh weather and the increasingly steep hurdles facing home builders. What is a bit of a surprise is how far sales fell, although the dip is likely temporary. Materials prices have surged in recent months – lumber prices were up 59% year-over-year in February according to some measures, the largest annual jump since the 1940s. And these rising prices seem to be eating into otherwise unbridled homebuilder optimism. Spirits among builders remain high, and activity should remain strong in the months to come, but sentiment has fallen back from the record highs set a few months ago. But many of these conditions -- except volatility in materials prices -- have probably already passed, and a large share of homes for sale that have not yet been started suggests that while weather may have closed job sites for a time, it didn't close sales centers. And with the supply of existing homes for-sale sitting at an all-time low, newly constructed homes remain an attractive option for the waves of home shoppers eyeing the market. So while sales activity may have paused somewhat in February, it should resume in coming months as the labor market improves, nationwide vaccine distributions continue and the shortage of available homes persists. New home sales remain well above pre-pandemic levels and the good times are likely to continue to roll this spring and summer, despite a weak February.