Sales of New Homes Fell in December, but the Future Looks Bright for the Home-Building Industry

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The numbers: Sales of newly-constructed homes in the U.S. dropped 0.4% on a monthly basis in December to a seasonally-adjusted annual rate of 694,000, the government reported Monday.

That’s compared with a seasonally-adjusted pace of 697,000 set in November, which was revised downward from the original report released last month. Because of the sample size of the new-home sales data collected by the U.S. Census Bureau, the report can have swings and significant revisions, as was also seen in the September and October data releases.

While new-home sales dropped on a monthly basis, they were up 23% from the previous year in December. The average rate of new home sales in 2019 was 681,000, which was 10.3% higher than 2018’s pace.

What happened: The median sales price for new homes was $331,400 in December, which was up from the previous month. The government estimated there was a 5.7-month supply of new homes available for sale, up slightly from November as well.

New-home sales increased in the West (up 31%) and the Midwest (up 10%). Meanwhile, sales volume fell 15% in the South and 12% in the Northeast.

Big picture: While new-home sales have now fallen for three consecutive months, most signs indicate that the new-home market should be strong in 2020.

Confidence among home builders remains around all-time highs in large part because of the low supply of homes for sale overall. A recent report from the National Association of Realtors found that the inventory of homes for sale nationwide had dropped to the lowest level in 20 years.

The lack of home-building activity following the recession has constrained Americans’ ability to buy nowadays. That’s driven home prices to record highs across much of the country, putting a strain on buyer’s finances. Nevertheless, buying demand remains elevated, which should continue to support interest in purchasing a new home.

What they’re saying: “Extremely tight supply conditions continue to hold sales down and are driving more homebuyers to the new home market,” said Nationwide’s senior economist Ben Ayers and economist Daniel Vielhaber in a research note.

Market reaction: The Dow Jones Industrial Average, S&P 500 and the 10-year Treasury note were all down in morning trading, a reflection of concerns surrounding the coronavirus in China.

Meanwhile, shares of home-building firms PulteGroup and D.R. Horton and Lennar Corp. all rose Monday morning.

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