New home sales surged to one million units sold in March, surpassing expectations at 21% above February levels; that marks the highest level since 2006. The South accounted for most of the increase as builders worked to catch up on severe weather delays in February.
We expect demand to remain robust as we head into the peak of the home-buying season. Materials bottlenecks and shortages of highly skilled tradespeople pose the highest hurdles. Lead times to finish homes have increased as costs continue to climb. Lumber is hard to find, let alone pay the high prices.
The number of homes sold pre-construction has reached the highest level since 2006; they accounted for one-third of new homes sold in March. The number of completed homes for sale stood at just 37,000, the lowest in over 20 years.
Existing home sales fell for the second month in a row in March, as prices rose a record-breaking 17% from a year ago. Lack of inventories of homes for sale is the largest constraint. Inventories have shrunk by 28% from a year ago, when the country was entering lockdowns.
Properties are being snapped up after an average of only 18 days on the market, also a record low. [Existing home sales reflect contracts signed a few months prior.] Showings in March were higher than February, signaling that April and May could post stronger home sales, especially as more sellers list their homes now that they have been vaccinated. Many older homeowners were hesitant to list their homes for fear of contagion, despite the rapid shift of many listings and sales to all-online platforms.
Mortgage applications jumped in mid-April as mortgage rates fell to a two-month low. Applications to purchase a home have been rising, even as relatively higher rates have reduced demand for refinancing. The average loan size has been increasing for new buyers, as prices have soared.
Some buyers are finding themselves priced out, especially first-time buyers trying to compete in hot housing markets. More renters will be unable to become homeowners if supply, especially at the lower end of the market, does not come on line this year. Investors who are buying to rent instead of sell new properties are crowding many middle-income buyers out of the market.
The housing market will continue to heat up in the next few months, especially with mortgage rates historically low and older millennials finally buying their first homes. Builders will continue to experience difficulty keeping up with demand, especially at the lower end of the market. Sales growth will continue to come from homes not yet built.
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