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First Cut: Sales of new homes down sharply in March

Sales of new single-family  homes fell 15.4% in March to 627,000 units (SAAR) after a series of strong months in the second half of 2019 and in the first months of 2020. Low mortgage rates and a robust labor market had kept homebuyers in the market even in the winter months and with limited supplies of units for purchase. However, the initial impacts of of the COVID-19 pandemic in the US in March led to widespread job losses that kept all but those with the greatest employment security and credit ratings out of the housing market. Continued low mortgage rates are immaterial if consumers who are not currently homeowners are not employed or too worried about future conditions to take the risk of entering the home market. I will also note that some of the decline may be due borrowing some activity from the spring with the milder weather and unusually vibrant buying situation over the winter months. The worst of the impacts from business closures and social distancing were in the latter weeks of March. A fuller picture of how the pandemic is hitting the housing market will be in the April numbers.

Sales were down in all four regions with the steepest declines along the East and West Coasts where the immediate economic impacts of the pandemic were the most present in March. The Northeast fell 41.5% and the West was Down 38.5%. Sales were off 8.1% in the Midwest and 0.8% lower in the South.

The median price of a new single-family home was down 2.6% in March to $321,400, although up 3.5% form March 2019. Some of the decline may be due to the localities in which sales continued to take place, i.e. outside of high housing cost areas in the Northeast or along the West Coast.

The unadjusted number of homes sold in March (61) was skewed to lower priced units with a 47% percent share for those under $300,000 compared to 39% in February. There were slightly fewer homes sold in the $300,000-$499,000 range at 39% of the total compared to 42% in February. Homes at $500,000 and over accounted for 15% of all sold in March, down from 18% in February.

Of the 627,000 units (SAAR) sold in March, 29% were in units not yet started, 34% were under construction, and 37% were complete. This is similar to the breakdown in recent months, so where homebuyers are in the market for a new unit, the overall composition has not much changed.

However, what was significant is that the months’ supply of homes rose noticeably to 6.4 in March after 5.2 in February and was the highest since 6.7 months in May 2019, just around when consumers began turning to new construction where existing supply was limited. Unless builders have firm commitments, a lot of planned construction may go on hiatus to prevent housing supplies from flooding the market.

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