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April 23, 2020, 11:02 a.m. EDT

New home sales plummeted in March as onset of coronavirus pandemic made buyers wary of signing contracts

The inventory of newly-constructed homes for sale could be enticing to the buyers that do remain in the market

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By Jacob Passy

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New-home sales have slumped because of the coronavirus pandemic.

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 /zigman2/quotes/210598065/realtime DJIA +0.08%   and the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.25%   both rebounded in Thursday morning trading on the hopes of another congressional stimulus package being passed. The yield on the 10-year Treasury note /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y 0.00%   however was down slightly.

Shares of home-building firms PulteGroup /zigman2/quotes/201694804/composite PHM +0.48%  , LGI Homes /zigman2/quotes/202461766/composite LGIH +0.41% , and Lennar Corp. /zigman2/quotes/202536373/composite LEN +0.59%   all rose Thursday morning.

US : Dow Jones Global
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Jacob Passy is a personal-finance reporter for MarketWatch and is based in New York.

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