New home sales in the US declined in February as severe winter weather in parts of the country restricted pedestrian traffic on a backdrop of increased prices that could potentially limit residential dynamics.
New single-family home purchases fell 18.2% from an upward revised rate of 948,000 in the previous month to 775,000 on an annual basis, government data showed on Tuesday. The mean forecast was for a pace of 870,000. Sales declined in all regions of the United States.
Housing demand is being held back in part by a limited number of properties available, leaving interested buyers less options while prices remain high. In February, bad weather could have hampered the search for homes as temperatures plummeted below freezing in some parts of the country and power outages hit states like Texas.
While the bad weather impact wasn't unexpected, "it's a little surprising how far sales have fallen, although the decline is likely only temporary," said Zillow economist Matthew Speakman. "Material prices have risen in recent months – lumber prices are up 59% in February versus several years. This is the biggest annual jump since the 1940s. And these rising prices seem to be denting the otherwise unbridled optimism of builders."
Nevertheless, the pace of new home sales remains a seasonally adjusted 8.2% year-on-year, which indicates the strength of the real estate market as a result of the pandemic.
In the coming months, higher borrowing costs could put more pressure on affordability and keep some buyers off the market. Mortgage rates have been rising slowly since mid-February as the US economic outlook improves.