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US February New Home Sales Plunge

Sales Pace Falls 4.4% to 765k SAAR, Supply Down Modestly

US new home sales fell sharply in February, down 4.4% to a 765,000 annual rate, better than market expectations for a decline to a 743,000 pace, but before the full impact of COVID-19.

The January sales pace was revised up to an 800,000 rate from the previously reported 764,000 rate.

The current month’s report measures down payments and building permits in February, prior to the full COVID-19 impact, suggesting there was some concern among buyers even then.

When the March data are released next month, the lack of buyer traffic and concerns about the economy will weigh even heavier.

National Association of Realtors chief economist Lawrence Yun said last week that it is hard to determine the magnitude of the impact the crisis will have on the housing market, but noted that there were already signs of a slowdown in activity in March. The NAR reported a large gain in their February report, in contrast to today’s data.

Inventories of new homes for sale fell by 0.9% in March, while the months’ supply ticked up to 5.0 months from 4.8 in January. Supply by both measures were down sharply from a year earlier and will only recede further in the coming months. Both housing starts and building permits declined in February, data released last week showed, suggesting tighter supply going forward.

New home prices ticked up in February and were well above their year-ago levels, the result of declining supply. As demand wanes, it is expected that prices should decline as well.

Mortgage rates have moved higher in the last week, as investors preferred cash over even bonds. The Federal Reserve’s actions, particularly buying Treasury securities and mortgage-backed securities, should help to press rates lower again.

The result should eventually be lower prices and lower rates, but the lack of foot traffic due to social distancing and uncertainty around the economy should keep the housing market on the decline for the foreseeable future.

Kevin Kastner

Julie Ros

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