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Dec. 23, 2020, 10:34 a.m. EST

New-home sales fall as buyers begin to get cold feet in an expensive market

Cooler weather has put a damper on the hot housing market

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By Jacob Passy


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Getting into a new home is more expensive these days than it was a year ago, which is bad news for home buyers looking for a deal.

The numbers: Sales of newly built homes occurred at a seasonally-adjusted annual rate of 841,000 in November, the Census Bureau reported Wednesday . That was 11% below the downwardly-revised pace of 945,000 in October.

Analysts polled by MarketWatch had projected new-home sales to occur at a seasonally-adjusted annual rate of 875,000. Compared to last year though, November’s numbers remained elevated, up nearly 21% year-over-year.

What happened: New-home sales fell across all parts of the country, led by a 43% decline in the Midwest.

Inventory rose markedly by month’s end, up some 14% to a 4.1-month supply. A six-month supply of homes is generally considered indicative of a balanced market. The median price of new homes for sale was $335,300, down from October but up 5% from a year ago.

The big picture: The dip in sales in November is a sign that buyers are cooling on the market, in tandem with the cooler weather. “While buyers continue to favor larger homes with bigger backyards and better quality of life, steeply-rising prices are driving a wedge between their preferences and their wallets,” said George Ratiu, senior economist at Realtor.com.

Indeed, the rising cost of new homes points to the challenges buyers will face as we head into the new year. The increase in sales prices for newly constructed homes is a reflection mainly of higher building costs. Nevertheless, with the supply of existing homes so constrained, buyers will face tough competition for most properties, driving the prices higher.

Builders will face a challenge in 2021: There’s high demand for more affordable homes, but those homes offer less of a return for construction firms. “New home builders must navigate rising construction costs and shifting consumer preferences to boost the availability of affordable new homes,” Ratiu said.

What they’re saying: “Inventories are tight — down 14.2% year-over-year in October — and could be a constraint for home sales going forward,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics, in a research note.

Market reaction: Market reaction: The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.06%   and S&P /zigman2/quotes/210599714/realtime SPX +1.49%  ere up Wednesday, despite confusion as to the fate of the latest stimulus package..

Meanwhile, shares of home-building firms PulteGroup /zigman2/quotes/201694804/composite PHM +0.69% , LGI Homes /zigman2/quotes/202461766/composite LGIH +1.75% , and Lennar Corp. /zigman2/quotes/202536373/composite LEN +1.01%  were all down upwards of 2% following the release of the new-home sales report.

/zigman2/quotes/210598065/realtime
US : Dow Jones Global
34,382.13
+360.68 +1.06%
Volume: 307.38M
May 14, 2021 5:02p
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/zigman2/quotes/210599714/realtime
US : S&P US
4,173.85
+61.35 +1.49%
Volume: 1.91B
May 14, 2021 5:02p
loading...
/zigman2/quotes/201694804/composite
US : U.S.: NYSE
$ 58.46
+0.40 +0.69%
Volume: 1.97M
May 14, 2021 4:05p
P/E Ratio
10.49
Dividend Yield
0.96%
Market Cap
$15.46 billion
Rev. per Employee
$2.10M
loading...
/zigman2/quotes/202461766/composite
US : U.S.: Nasdaq
$ 175.83
+3.03 +1.75%
Volume: 280,865
May 14, 2021 4:00p
P/E Ratio
11.70
Dividend Yield
N/A
Market Cap
$4.38 billion
Rev. per Employee
$2.52M
loading...
/zigman2/quotes/202536373/composite
US : U.S.: NYSE
$ 99.71
+1.00 +1.01%
Volume: 2.25M
May 14, 2021 4:00p
P/E Ratio
10.19
Dividend Yield
1.00%
Market Cap
$30.44 billion
Rev. per Employee
$2.37M
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Jacob Passy is a personal-finance reporter for MarketWatch and is based in New York.

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