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May 26, 2020, 11:05 a.m. EDT

New home sales edge upward in April despite coronavirus stay-at-home orders

Home builders have an opportunity to see improved sales by shifting their designs to meet buyers’ new preferences in a post-coronavirus world

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By Jacob Passy


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Sales of new homes improved slightly in April, despite a dip in consumer confidence fueled by the coronavirus pandemic.

The numbers: Sales of newly-built single-family houses occurred at a seasonally-adjusted annual rate of 623,000, the government reported Tuesday.

That was 0.6% above the revised pace of 619,000 in March. Compared with the previous year, however, new home sales were down 6.2% in April.

Analysts polled by MarketWatch had forecast new-home sales to occur at a seasonally-adjusted annual rate of 480,000 in April. Because of the small sample size used to produce to new-home sales report, it is prone to significant revisions.

What happened: The Northeast experienced the largest increase between March and April in new home sales, with an 8.7% uptick. New home sales rose 2.4% in both the Midwest and South, but fell 6.3% in the West.

The median sales price of new homes sold in January was $309,900, which was down 8.5% from a year earlier. The inventory of new homes for sale at the end of April was 325,000, representing a 6.3-months’ supply.

‘As consumers spent long weeks at home, they discovered the value of additional space and updated kitchens.

George Ratiu, senior economist at Realtor.com

Sales volume varied significantly from region to region. The West saw a 17% decline in new-home sales, while the Midwest experienced a 7% decrease. Meanwhile, the Northeast experienced a 39% jump in sales, while sales rose 1% in the South.

Big picture: While April did not see a repeat of the 15% decline in new home sales from the month earlier, the picture wasn’t necessarily rosy. Indeed, despite mortgage rates being some 80 basis points lower than they were a year ago, buyers didn’t rush into the market.

Rather, government-mandated stay-at-home orders and skyrocketing unemployment weighed heavily on consumer confidence, making Americans wary of such a large purchase.

May could see a bigger improvement in new home sales, though. Confidence among builders has moved higher, and there are signs that buyers have begun examining new listings as the pandemic-related shutdowns have eased.

And the market for new homes has a major opportunity to rebound more significantly from the coronavirus-fueled dip. Because newly-constructed homes are more expensive than existing homes, they tend to be aimed at move-up buyers rather than first-time home-buyers. The coronavirus pandemic may have shifted these buyers’ appetites toward larger homes.

If builders shift their construction toward those preferences, they could see sales pick up in the months ahead. “As consumers spent long weeks at home, they discovered the value of additional space and updated kitchens,” said George Ratiu, senior economist at Realtor.com. “As remote work policies are being extended into 2021 by a growing number of companies, and likely to become permanent in some cases, demand for home offices is projected to grow.”

What they’re saying: “This could be a sign that housing will be one component of GDP that rebounds faster over the summer months, helped by lower interest rates,” CIBC Capital Markets’ senior economist Andrew Grantham and economist Katherine Judge said in a research note.

Market reaction: The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.30%  and the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.27%   both rose in Tuesday morning trading on optimistic news regarding travel trends and potential vaccines.

Shares of home-building firms PulteGroup /zigman2/quotes/201694804/composite PHM +2.03%   , LGI Homes /zigman2/quotes/202461766/composite LGIH -1.69%  , and Lennar Corp. /zigman2/quotes/202536373/composite LEN +1.72%  , however, outpaced those two indexes on the upbeat new-home sales report.

/zigman2/quotes/210598065/realtime
US : Dow Jones Global
27,791.44
+357.96 +1.30%
Volume: 362.50M
Aug. 10, 2020 5:12p
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/zigman2/quotes/210599714/realtime
US : S&P US
3,360.47
+9.19 +0.27%
Volume: 2.57B
Aug. 10, 2020 5:12p
loading...
/zigman2/quotes/201694804/composite
US : U.S.: NYSE
$ 45.16
+0.90 +2.03%
Volume: 3.43M
Aug. 10, 2020 4:03p
P/E Ratio
10.64
Dividend Yield
1.06%
Market Cap
$11.87 billion
Rev. per Employee
$1.98M
loading...
/zigman2/quotes/202461766/composite
US : U.S.: Nasdaq
$ 110.15
-1.89 -1.69%
Volume: 294,321
Aug. 10, 2020 4:00p
P/E Ratio
13.21
Dividend Yield
N/A
Market Cap
$2.81 billion
Rev. per Employee
$1.76M
loading...
/zigman2/quotes/202536373/composite
US : U.S.: NYSE
$ 74.50
+1.26 +1.72%
Volume: 3.08M
Aug. 10, 2020 4:00p
P/E Ratio
11.23
Dividend Yield
0.67%
Market Cap
$22.19 billion
Rev. per Employee
$1.77M
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Jacob Passy is a personal-finance reporter for MarketWatch and is based in New York.

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