New Single-Family Home Sales Soared 20.7% in March

 
Implications:  New home sales surged in March, beating even the most optimistic forecast by any economics group as buyers excitedly re-entered the market following a temporary pause in activity in February due to severe winter weather across the US.  New home sales are now up 31.9% from the pre-COVID high and currently sit at the highest level since 2006.  Keep in mind that sales of new homes are counted when contracts are signed rather than being counted at closing, like existing home sales. This means they are a timelier indicator of the housing market, so it's not surprising that March new home sales posted such a strong rebound from February's weather-related weakness (+20.7%) while existing home sales yesterday did not (-3.7%).  Expect a rebound in existing home sales in April. Looking ahead, new home sales will continue to face headwinds related to affordability and low inventories.  Thirty-year fixed mortgage rates are up roughly 40 basis points from the lows in late 2020, pushing potential buyers' monthly payments higher.  The bigger issue for new home sales, though, continues to be the lack of finished homes available for purchase.  In the past year, the only portion of the new homes inventory that has increased are homes where construction has yet to start.  Meanwhile, the inventory of completed new homes available for sale is down a massive 50.7% over the same period, illustrating just how strong demand was in 2020.  The good news is that builders are responding to the inventory shortage, with the number of single-family homes currently under construction at the highest levels since 2007.  As more homes become available, we expect demand will remain strong and help maintain a rapid pace of sales in 2021 for a couple reasons.  First, there has been a big shift in buyer preferences over the past year, with pandemic restrictions and significant changes in corporate work-from-home policies giving workers both the urgency and ability to seek out more spacious options in the suburbs.  Even as pandemic restrictions are removed and life returns to "normal," recent changes toward work-from-home policies are unlikely to fully reverse, and buyers who have their minds set on a single-family home will follow through as more options become available.  Second, Millennials are now the largest living generation and have begun to enter the housing market after years of delays, making up over 50% of mortgage originations in 2020 for the first time.  Census Bureau projections show that the population of people ages 30-49 is set to grow significantly through 2039, which should bolster housing demand for the foreseeable future as this is a key homebuying demographic.

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Posted on Friday, April 23, 2021 @ 12:55 PM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.