New home sales dropped lower than expected in February, as home builders faced unexpected hurdles, including higher costs for materials, delays, and consistently climbing mortgage rates.
Sales for new fully-built homes saw an 18% decline, the slowest pace since May of 2020, according to data from the U.S. Census Bureau. The number of homes sold before their construction rose 20% year over year in February. The number of yet-to-be-built homes on the market rose to 64%.
The demand for houses continues to rise, and builders continue to offer unbuilt homes to meet the rising demand.
“It is a sign of the fact that given time, builders have real demand/traffic in front of them and expect to be able to build out those possible sales in the future,” said NAHB’s chief economist Robert Dietz. “Demand is strong, perhaps weakening a little on pricing and (interest) rates. But there are delays in the construction pipeline due to materials, similar to the steel/semiconductor impact on cars.”
Major builders in cities such as Philadelphia find themselves no longer able to sell homes before they are built and attempting to explain delays to customers. Some have noted that severe weather, especially throughout the South, could have contributed to this. However, data shows that many of the sales offices for these new homes were brimming with customers, another strong sign of demand.
Zillow economist Matthew Speakman remains optimistic. As the labor market improves, vaccination numbers continue to grow, and a shortage of available homes persist, he believes new home sales will “remain well above pre-pandemic levels and the good times are likely to continue to roll this spring and summer, despite a weak February.”
