By Lucia Mutikani
WASHINGTON (Reuters) – Sales of new U.S. single-family homes unexpectedly fell in February amid rising mortgage rates and higher house prices, which are reducing affordability for some first-time buyers.
New home sales decreased 2% to a seasonally adjusted annual rate of 772,000 units last month, declining for a second straight month, the Commerce Department said on Wednesday.
January’s sales pace was revised down to 788,000 units from the previously reported 801,000 units. Sales surged 59.3% in the Northeast and increased 6.3% in the Midwest. But they fell 1.7% in the densely populated South and tumbled 13.0% in the West.
New homes are a leading indicator for the housing market as they are counted at the signing of a contract.
“Rising mortgage rates and high prices will be key issues and could weigh on home sales going forward,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York.
Economists polled by Reuters had forecast new home sales, which account for 11.4% of U.S. home sales, would rebound to a rate of 810,000 units. Sales declined 6.2% on a year-on-year basis in February. They peaked at a rate of 993,000 units in January 2021, which was the highest since the end of 2006. Sales, however, remain above their pre-pandemic level.
Mortgage rates surged in February and have continued to push higher after the Federal Reserve last week raised its policy interest rate by 25 basis points, the first hike in more than three years, and laid out an aggressive plan to push borrowing costs to restrictive levels by 2023.
The 30-year fixed rate vaulted 23 basis points to a three-year high of 4.50% last week, data from the Mortgage Bankers Association showed on Wednesday. Still, mortgage rates remain low by historical standards.
The new housing market remains supported by near record-low inventory of previously owned homes. Data last week showed sales of previously owned homes fell sharply in February.
The median new house price in February increased 10.7% from a year ago to $400,600. There were 407,000 new homes on the market, the highest since August 2008 and up from 398,000 units in January. Houses under construction made up 65% of the inventory, with homes yet to be built accounting for about 26%.
The backlog of homes approved for construction but yet to be started is at an all-time high as builders struggle with shortages and higher prices for inputs like lumber for framing, as well as cabinets, garage doors, countertops and appliances.
At February’s sales pace it would take 6.3 months to clear the supply of houses on the market, up from 6.1 months in January.
(Reporting by Lucia Mutikani; Editing by Paul Simao)