WASHINGTON: Sales of new US single-family homes fell to a nine-month low in February amid bitterly cold weather, and expensive lumber and rising mortgage rates could cool the housing market this year.
The report from the Commerce Department on Tuesday followed on the heels of data this month showing a plunge in homebuilding and permits for future construction in February. There has been demand for bigger houses to accommodate home offices and remote schooling as the COVID-19 pandemic lingers.
But a record jump in lumber prices and labour and land shortages is increasing costs for builders, hampering their ability to ramp up construction. The dearth of homes is boosting house prices, which together with a sustained rise in mortgage rates since February, is making homeownership more expensive for first-time buyers.
"The residential housing market will continue to support economic growth, but risks are to the downside," said Abbey Omodunbi, an economist at PNC Financial in Pittsburgh, Pennsylvania. "The run-up in prices and rising mortgage rates will erode affordability and likely weaken demand in 2021."
New home sales plunged 18.2 per cent to a seasonally adjusted annual rate of 775,000 units last month. Economists polled by Reuters had forecast new home sales would tumble 6.5 per cent to a rate of 875,000 units in February.
Though new homes account for a small share of total sales, they are a leading indicator for the housing market as they are counted at the signing of a contract.
Sales decreased in all four regions. New home sales are drawn from a sample of houses selected from single-family building permits, which dropped 10 per cent in February.
Last month's unseasonably cold weather, including severe winter storms in Texas and other parts of the densely populated South region, depressed retail sales, production at factories and homebuilding.
Warmer temperatures, an acceleration in the pace of coronavirus vaccinations and the White House's US$1.9 trillion COVID-19 pandemic rescue package are expected to spur a sharp rebound in economic activity in March.
New home sales increased 8.2 per cent on a year-on-year basis in February, benefiting from an acute shortage of previously owned homes. The National Association of Realtors reported on Monday that the inventory of existing homes remained stuck at record lows in February.
New home sales last month were concentrated in the US$200,000-US$749,000 price range. Sales in the below-US$200,000 price bracket, the sought-after segment of the market, accounted for only 4 per cent of transactions last month.
Stocks on Wall Street slipped. The dollar rose against a basket of currencies. US Treasury prices were higher.
The 30-year fixed-rate mortgage has risen to a nine-month high of 3.09 per cent, according to data from mortgage finance agency Freddie Mac. Mortgage rates have risen in tandem with US Treasury yields, which have spiked in anticipation of stronger economic growth this year and higher inflation from the massive fiscal stimulus.
The cost of softwood lumber surged a record 79.7 per cent on a year-on-year basis in February. According to the National Association of Home Builders, that was adding about US$24,000 to the price of a new home. The median new home house price jumped 5.3 per cent from a year ago to US$349,400 in February.
"Rising mortgage rates will likely soften homebuyer demand modestly, while homebuilder constraints, including the ongoing high prices of lumber and other materials, will likely dampen the supply of new homes," said Doug Duncan, chief economist at Fannie Mae in Washington. "However, underlying demand remains strong. The extremely tight supply of existing homes for sale may encourage more homebuyers to turn to new home purchases."
There were 312,000 new homes on the market last month, up from 304,000 in January. At February's sales pace it would take 4.8 months to clear the supply of houses on the market, up from 3.8 months in January. About 73 per cent of homes sold last month were either under construction or yet to be built.
Separately on Tuesday, the Commerce Department said the current account deficit, which measures the flow of goods, services and investments into and out of the country, surged 34.8 per cent to a 12-year high of US$647.2 billion in 2020 as the pandemic severely disrupted exports.
The deficit could remain big this year as the stimulus-driven economic recovery draws in imports. The current account gap represented 3.1 per cent of gross domestic product last year, also the largest share since 2008 and up from 2.2 per cent in 2019. The wider deficit is likely not an issue for the United States because of the dollar's status as the world's reserve currency.
"Early 2021 data shows the trade recovery continuing in the first quarter, but it will take time to return to pre-COVID conditions since the pandemic isn't over yet and stretched supply chains are inhibiting progress," said Oren Klachkin, lead US economist at Oxford Economics in New York.
"Looking ahead, we expect the current account deficit to widen slightly and average 3.5 per cent of GDP in 2021 as positive recovery dynamics and generous fiscal stimulus maintain a strong pull on imports while exports recover more slowly."
Economic growth this year is expected to top 7 per cent. That would be the fastest growth since 1984 and would follow a 3.5 per cent contraction last year, the worst performance in 74 years.