New home sales slip in February
|New home sales dipped 0.3% to a 662K-unit pace during February. The slight decline occurred against a backdrop of mortgage rates creeping higher during the month. Despite easing a bit recently, affordability is still a major constraint on homebuyer activity and the edge-up in financing costs looks like it was enough to discourage transactions. More resale inventory coming to market also may have cut into sales during the month. All that being said, a strengthening trend largely remains intact, with sales up 5.9% on a year-over-year basis in February. Moving forward, a structural shortfall of available single-family homes as well as home builders' ability to bridge the affordability gap with price incentives should continue as tailwinds and support an improving sales pace this year. The tiny decline registered was likely owed to an uptick in mortgage rates during the month. According to Freddie Mac, the average 30-year mortgage rate rose to 6.8% in February from 6.6% the month prior. As we have noted recently, more resale inventory is coming to market. While still low, the relative improvement in available existing homes also may have cut into new home sales during the month. The minor slip in new home sales stands in stark contrast to a surge in existing home sales during the same month. The discrepancy is likely owed to differences in the methodology behind each data series. New home sales are a snapshot of signed sales agreements whereas existing home sales data measures contract closings, which can lag by a month or two. As such, the marginal fall in new home sales may be presaging a near-term slowdown in buyer demand on account of worsening affordability conditions. All that being said, a strengthening trend in new home sales remains largely intact. Sales were up 5.9% on a year-over-year basis in February. On a not-seasonally adjusted, not annualized basis, the count of new homes sold in the first two months of this year stood at 117K, up 4.4% from the 112K count during the same period in 2023. Moving forward, a structural shortfall of available single-family homes as well as home builders' ability to bridge the affordability gap with price incentives should continue as tailwinds and support an improving sales pace this year.Summary
Strengthening trend still largely in place
New home sales miss a beat in February
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