Sales of new homes inched down in February

By Aarthi Swaminathan

New home sales dragged down by 32% plunge in the Northeast

The numbers: Sales of newly-built homes in the U.S. fell slightly in February, as mortgage rates inched up.

U.S. new-home sales fell 0.3% to an annual rate of 662,000 in February, from a revised 664,000 in the prior month, the Commerce Department reported Monday.

The number is seasonally adjusted, and refers to how many homes would be built over an entire year if builders continue at the same pace every month.

The pace fell short of expectations on Wall Street. Economists had forecast new-home sales to total 675,000 in February.

The rate of new-home sales was dragged down by weakness in the Northeast.

The data from January was revised. New-home sales rose a revised 1.7% in January, compared with the initial estimate of a 1.5% increase.

The new-home sales data are volatile month-on-month and are often revised.

Key details: The median sales price of a new home sold in February fell to $400,500 from $414,900 in the prior month.

The supply of new homes for sale rose 1.2% between January and February.

New-home sales fell sharply in the Northeast by 31.5%, and in the Midwest by 2.4%, which dragged down the national figure. Sales rose in the South and the West.

Overall, sales of new homes are up 5.9% compared to last year.

Big picture: Though the February data revealed a drop in new-home sales, likely due to an increase in mortgage rates, the sector remains the brightest spot in the U.S. housing market.

Home builders are optimistic about sales in the upcoming months, as seen by a recent survey. Home buying demand for newly built homes remains strong as resale-home inventory slowly rises.

That's likely to pick up further as mortgage rates are expected to decline through the rest of the year. Fannie Mae expects the 30-year mortgage to end the year at 6.4%, versus the 6.87% as of March 21, per Freddie Mac data.

What are they saying? With the inventory of new homes rising in February, "I find it particularly interesting that the stock of completed new homes on the market has backed up considerably in recent months, reaching 85K in February, the highest reading since 2010," Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets, wrote in a note.

"The benign explanation is that builders have ramped up in anticipation for a stellar spring selling season," he added. " If not, builders could be forced to pull back on building activity later this year."

Market reaction: On the back of an increase in new-home sales, major home builder stocks (DHI) (KBH) (LEN) (TOL) were mixed in the morning trading session, while the homebuilder ETF XHB was up.

-Aarthi Swaminathan

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03-25-24 1032ET

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