By Jacob Passy
The numbers: Sales of newly-constructed homes in the U.S. sank 15.4% on a monthly basis in March to a seasonally-adjusted annual rate of 627,000, the government reported Tuesday .
Compared with March 2019, new-home sales were down 9.5%.
Because of the small sample size used to produce to new-home sales report, it is prone to significant revisions. February’s new-home sales figured was revised downward to a rate of 741,000.
What happened: The national downturn in new-home sales was led by a 41.5% drop in sales activity in the Northeast and a 38.5% drop in the West, likely a reflection of the larger number of COVID-19 cases these two regions have seen. New York has been the epicenter of the coronavirus outbreak in the U.S. Nevertheless, sales also fell in the Midwest (down 8.1%) and the South (down 0.8%).
The median sales price of new homes sold in March was $321,400. The inventory of new homes for sale rose to 333,000, representing a 6.4 months’ supply.
The big picture: While the decrease in new home sales was more pronounced than the drop in March existing-home sales reported earlier this week, the discrepancy is actually a reflection of the data used to produce the two reports.
“Because new home sales are based on contract signings, an early step in the home buying process, they showed a larger decline than existing home sales data, which came out earlier this week,” said Danielle Hale, chief economist at Realtor.com. The March existing-home sales data largely reflected transactions where contracts were signed back in February or even January.
Nevertheless, the two reports tell a similar story: Buyers have grown nervous about purchasing a home right now because of the coronavirus pandemic and the resulting economic downturn.
And signs suggest that April won’t be much better for the new-home market. A survey of 65 private mid-size regional home builders conducted by financial services firm BTIG during the week of April 20 found that 85% of builders reported a slower-than-normal sales pace.
There is one silver lining for the housing industry. The 6.4-month supply of new homes could be enticing to consumers still shopping for a home to buy. “Home buyers still in the market for a home might take a fresh look at new homes in the months ahead,” Hale said.
What they’re saying: “Builders are still facing a difficult sales and traffic environment, but cancellation data suggests that buyers under contract are still generally moving towards closing,” the BTIG analysts wrote.
Market reaction: The Dow Jones Industrial Average (DOW:DJIA) and the S&P 500 (S&P:SPX) both rebounded in Thursday morning trading on the hopes of another congressional stimulus package being passed. The yield on the 10-year Treasury note (XTUP:BX:TMUBMUSD10Y) however was down slightly.
Shares of home-building firms PulteGroup (NYS:PHM) , LGI Homes (NAS:LGIH) , and Lennar Corp. (NYS:LEN) all rose Thursday morning.