Sales of new homes plunged in February as harsh winter weather and supply issues interrupted a scorching hot housing market, according to data released Tuesday by the Commerce Department.
The seasonally adjusted number of new homes sold fell 18.2 percent in February, dropping to an annualized rate of 775,000 from a revised 948,000 in January. New home sales fell in every region of the country as damaging winter storms wreaked havoc across the U.S., straining an already tight supply of homes.
“There are now more real estate agents than actual homes available for sale in the U.S. Existing home sales are recorded at the contract closing, so the drop is a reflection of the diminishing supply back in December and January,” said Yelena Maleyev, an economist at Grant Thornton, in a Tuesday analysis.
“Electricity outages in Texas and bursting pipes across much of the South also likely delayed closings.”
A surge of home buyers driven by COVID-19 competing for a meager supply of new and existing houses for sale have driven up prices dramatically since last spring. The median sale price of a home sold in February was $349,400 and the average sale price was $416,000, according to the Commerce Department.
The department estimated that just 312,000 new homes were up for sale by the end of February, enough to cover 4.8 months at the current seasonally adjusted rate of sales.
While the housing market boom has been a boon for homeowners and those who can afford to upgrade or expand their property holdings, it has also raised concerns about a potential market bubble. The surge in housing prices, which is also driven by shortages of homebuilding materials, has also exacerbated a long-standing affordability crisis, which could fuel even greater income and wealth inequality.
“The question is whether more affordable supply will be available for millennials who are entering their prime home-buying years. Mortgage rate movements will start to price out some price-sensitive buyers while soaring materials costs for builders are hindering their ability to meet demand quickly and pass on costs to buyers,” Maleyev said.