New-home sales enjoy big March bounce, but could hot market get even hotter?

New-home sales surged to a seasonally adjusted annual rate of 1.02 million units in March, according to the newest estimates released by the U.S. Census Bureau and the Department of Housing and Urban Development.

That pace, highest since September 2006, represents a staggering 20.7% increase month over month and a 66.8% increase year over year. Numbers for February were also revised upward to a pace of 846,000 units, up from the previously reported 775,000-unit rate held down by the month’s harsh winter weather.

“Our members are seeing strong buyer traffic as continued low mortgage rates are helping fuel sales,” said Chuck Fowke, chairman of the National Association of Home Builders (NAHB). Demand remains robust in most parts of the country, with sales being held back by the lack of available listed homes. Inventory in March rose nominally but is still low at 3.6 months’ supply at the current sales pace, with 307,000 new single-family homes for sale. That’s 44.6% lower than in March one year earlier, and with builders facing persistent supply problems of their own, it’s likely inventories will remain low despite the construction industry’s best efforts.

“Builders are still grappling with major supply chain issues and soaring materials costs, which are causing construction delays and preventing them from adding to the already very low inventory,” explained Fowke.

If builders are able to move the supply needle, Wells Fargo projects a significant spike in an already sizzling market.

“We believe we are on the precipice of a historic housing boom that would rival what was seen in the aftermath of World War II and the 1970s if builders could get the lots, labor and lumber they need to build more homes,” the bank’s analysts wrote in commentary. “The winding down of the pandemic has unleashed a torrent of home buyers, many of which are flush with savings accumulated while they remained home and curtailed discretionary spending over the past year.

“The new home market is also benefiting from the exceptional strength in existing home sales, which is facilitating the affordability migration away from high-priced housing markets to lower-cost areas, many of which are in the South and Mountain West.”

In the meantime, however, low inventories and supply chain concerns mean rising home prices may remain a barrier for potential house hunters looking for affordable homes.

“Despite the increase in sales, housing affordability remains a major concern,” said Danushka Nanayakkara-Skillington, the NAHB’s assistant vice president of forecasting. “With building material pricing, the challenge for builders in 2021 will be to deal with higher input costs while making sure home prices remain within reach for American home buyers.”


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