Buyers shift gaze to unstarted builds as new home sales drop again in February

Inman News / Real Trend

Inventory of new homes for sale, however, rose 3.3% from January. Homebuilders sold more unstarted homes in February, but these gains were more than offset by a decline in sales for homes under construction, according to the US Census Bureau.

Homebuilders notched another relatively slow month of sales in February as new buyers pushed their timelines out further into the future.

New homes sold in February at a seasonally adjusted annual rate of 772,000, a 2 percent decline from the previous month and 6 percent lower than the same time last year, according to the U.S. Census Bureau’s latest monthly report.

The decline could be partly attributed to recent mortgage rate hikes, National Association of Home Builders Chief Economist Robert Dietz wrote Wednesday.

“After an unsustainably strong period of new home sales from summer 2020 to early 2021, sales have settled back to the long-term trend, constrained by construction constraints and housing affordability concerns,” Dietz wrote.

This decline was driven by a 9 percent monthly drop in the number of homes sold that were currently being built. At the same time, sales of the smaller group of homes that have not yet begun construction rose by 9 percent from January to February.

As builders have continued to navigate supply chain issues and volatile prices for construction materials, sale prices for newly built homes have wavered as well.

Half of new homes sold for $400,600 or less last month, down from January’s revised median sale price of $427,400. Since reaching a low point in June, new home prices have been rising and falling roughly in this same range.

For the second consecutive month, declines in new home sales have coincided with an increase in inventory. Builders reported 407,000 new homes available for sale in February. That’s 33 percent higher than the number of new homes for sale at the same time last year.

More than 9 in 10 new homes for sale were either still under construction, or not started. Only 35,000 completed new builds were listed for sale. At the same point last year, there was an inventory of 39,000 completed homes.

Meanwhile, the number of for-sale homes that were still under construction continued to climb.   This number rose from 188,000 in February of 2021 to 266,000 last year. The number of yet-to-be-built homes for sale rose from 79,000 to 106,000 in that same span.

There are multiple reasons for the rise in new-build inventory, Dietz argues.

“First, construction times have increased, leading to more inventory in the construction pipeline,” Dietz wrote. “Second, inventory has increased with higher demand and lower resale supply.”


After dropping 4.5% month-over-month in January, new home sales were down again in February, decreasing 2.0% from the month prior to a seasonally adjusted rate of 772,000, according to data released by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau on Wednesday.

Year-over-year, new home sales were down 6.2% in February.

“Though February’s new sales were below recent highs, builders are still selling homes at a higher seasonally adjusted rate than they did at any point between 2008 and 2019,” Zillow economist data analyst Dan Handy said in a statement. “This transaction volume is taking place against a backdrop of continuous supply chain and labor disruptions.”

At the end of February, an estimated 407,000 new homes were still for sale, which at the current sales rate represents a 6.3 months supply. This is an increase of 3.3% from a month prior and a 40% increase from the February 2021 level.

“Buyers are facing a housing market that looks to be as competitive as ever,” Handy said in a statement. “Inventory is at a record low and homes are selling within a week of being listed – more than two weeks faster than they did in February 2020.”

While single family housing starts hit its highest level since 2006 in February, homebuilder sentiment dropped below the 80-point mark or the first time since September 2021 according to the National Association of Home Builders (NAHB) and Wells Fargo Housing Market Index (HMI) report. Experts say that continued supply chain issues, labor shortages, rising material costs and rising interest rates are to blame.

“As mortgage rates rise, all else held equal, house-buying power falls,” First American deputy chief economist Odeta Kushi said in a statement. “Homebuilder confidence fell in March as builders continue to face supply chain disruptions, price increases, and concerns that declining affordability will price out buyers.”

Although home prices continue to rise across the nation, the median sales price of a new home in February was $400,600, down from $423,300 in January.

“Compounding the challenges that buyers are facing in this historically competitive market is the fact that monthly mortgage payments are rising at their fastest pace in decades, as home values and mortgage rates have each experienced sharp increases to begin the year,” Handy said in a statement.

Regionally, new home sales increased month over month in the Northeast (59.3%) and the Midwest (6.3%), but fell in the South (-1.7%) and the West (-13.0%). Year over year, all regions saw decreases in new home sales, except for the Northeast which recorded a 7.5% increase.

The market crunch affects borrowers with less money more acutely, economists said.

“Affordability is a growing challenge as higher new-home prices and rising rates may be pricing out some buyers,” Kushi said. “One year ago, 31% of new home sales were priced below $300,000. In February 2022, only 18% of new home sales were priced below $300,000.”

Doug Duncan, the chief economist at Fannie Mae, said the increase in the number of homes for sale in February could be sign of larger trends worth following.

“However, the increase was due almost entirely to homes that have not been started, which reached a record high of 106,000 units,” he said. “This points to potential for more homes being built later in the year, but the number of homes sold that are under construction fell 9.1% after a 10.4% drop in January. This suggests some slowing of demand, which should soften further if mortgage rates continue to rise. Even if rising mortgage rates stabilize, affordability constraints are now at a level that is likely increasingly weighing on sales, while further increases in financing costs for homebuilders may also modestly limit the conversion of new lots into completed units.”