New home sales soar to highest level since 2007

The numbers: Sales of newly-constructed homes in the U.S. soared 7.9% on a monthly basis in January to a seasonally-adjusted annual rate of 764,000, the government reported Wednesday.

That figure represents the highest pace of new home sales since July 2007, making for a new cycle high for the housing market. On an annual basis, new home sales were up 18.6% compared with January 2019.

Additionally, the government adjusted its figures for previous months. The December rate of new home sales was revised upward to 708,000, while the rate for November was readjusted lower to 692,000. The new home sales report, because of its small sample size, is prone to significant revisions like these.

What happened?: On a monthly basis, sales increased the most in the Midwest, where they rose 30.3%, followed by the West (up 23.5%). In the Northeast, new home sales increased a more modest 4.8% between December and January, and they dropped 4.4% over that same time frame in the South.

Sales increase on a year-over-year basis by more than 40% for every region except the South, where they fell 2.4%.
The median sales price of new homes sold in January was $348,200. The inventory of new homes for sale dropped to 324,000, representing a 5.1 months’ supply. The is the lowest supply of new homes on the market since 2017.

The big picture: Confidence among home builders has remained at record highs in recent months, and this report show why. The number of previously-owned homes for sale is at record lows currently. Meanwhile, a strong job market, wage growth and near-record-low interest rates have provided a major boost in demand for homes.

With homeownership an affordable prospect for more Americans, they have to turn somewhere to purchase. This has made the new home market more attractive, even though new homes typically cost more for buyers. As a result, home construction activity should remain healthy for some time to come, barring complications caused by the coronavirus-fueled economic slowdown.