New home sales rose 12 percent in December

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New home sales rose 12 percent last month, according to data released Wednesday by the Census Bureau and Department of Housing and Urban Development, but dropped sharply from December 2020 levels. 

The seasonally adjusted annualized rate of new homes sold rose to 811,000 in December, jumping from a downwardly revised rate of 725,000 in November. New home sales, however, were down 14 percent from the December 2020 rate of 943,000. The rate reflects how many new homes would be sold in a year at that month’s pace.

Both home sales and prices rose dramatically in 2020 as the pandemic and a flood of fiscal and monetary stimulus unleashed intense demand for new houses. But widespread supply shortages and a severe lack of houses on the market slowed sales in 2021 while keeping intense upward pressure on prices.

The median sales price for a new home in December was $377,000, and the average sales price was $457,000.

“Significant shortages of materials, land and labor are ongoing headwinds for builders who are seeing the busiest demand period since the last housing bubble,” wrote Grant Thornton economist Yelena Maleyev in a Wednesday analysis.

“Home prices rose at an astronomical pace in 2021 as strong demand fueled by ultra-low mortgage rates was met with a significant shortage of available homes,” she continued.

The COVID-19 pandemic exacerbated a lack of affordable housing and years of steady increases in house prices. A slowdown in construction, supply chain snarls, lumber shortages and other pandemic-related obstacles prevented builders from filling a massive backlog, while low interest rates and lockdowns prompted a sharp rise in demand.

Looming rate hikes from the Federal Reserve could make mortgages slightly more expensive and cool off demand, but it remains unclear when and if housing builders will be able to catch up.

The Build Back Better Act, President Biden’s sweeping climate and social services bill, included $150 billion to build, repair and remove barriers for affordable housing. Even so, those provisions are vulnerable to be cut from the package after Sen. Joe Manchin (D-W.Va.) torpedoed the bill in a December interview. 

The housing investments in the Build Back Better plan could also take months, if not years, to make a dent in the severe shortage of affordable homes.

“Buyers will continue to face record-high home prices and bidding wars into 2022, even as more supply comes on line. High materials prices and more homes being built at the higher end are adding insult to injury,” Maleyev wrote. The current supply of homes on the market, she added, is enough to satisfy less than two months of demand at the current pace of sales.

“Lack of supply, especially at the entry level, will remain a hurdle in 2022. High prices and bidding wars will continue to sideline some would-be buyers,” she wrote.

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