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First Cut: January sales of new homes jumps to highest since July 2007

Sales of new single-family homes rose 7.9% to 764,000 in January from December, the highest since 778,000 in July 2007. The level was up 18.6% compared to January 2019. The jump confounded even the most optimistic of market expectations for sales of new homes. Some of this will be due to atypically strong regional sales during the winter months while mortgage rates are low enough to prompt consumers to buy homes to lock in the cheapest possible rate and improve affordability. Low rates may also mean that homebuyers may opt for a little more house than might otherwise be the case.

Sales were up in three of four regions in January. Sales in the Midwest gained 30.3% to 99,000 and the West to 23.5% to 252,000, while sales were up 4.8% to 44,000 in the Northwest. Sales dipped 4.4% to 396,000 in the South, possibly related to some unusually bad weather in that region as well as that demand may have been exhausted after several months of hectic sales.

In any case, the pace of homebuying is up significantly compared to last year when mortgage rates were higher, if down from the near-term peak in the Freddie Mac rate for a 30-year fixed rate mortgage of 4.87%  in November 2018. In January 2020 the rate was 3.62% compared to 3.72% in December. With the February 202 rate averaging 3.47% so far, it will be a continuing incentive to buy a home, either existing or new.

Vigorous sales have brought the supply of homes down to 5.1 months’ worth, the lowest since 4.8 months in November 2017. Limited supplies may be helping to drive up prices, although the purchase of pricier properties is also a factor. The median price of a home was up 7.4% to $348,200 in January from December and up 14.0% compared to January 2019.

Homebuilders have been increasing projects at the lower end of the price range to capture some of the market share that can’t be met by supplies of existing units, but homes in all price ranges are getting built. Homebuilders are also seeing more commitment from homebuyers who are willing to contract for units not yet started and under construction. In turn, it means the supply of completed housing is less of the share of new homes sold.

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