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New Home Sales: Strong Sales Close '21, Supply Increased Again

January 26, 2022
Bottom Line:   For now, activity remains robust. But the supply conditions in the new home market leave it vulnerable if the housing market starts to slow materially with higher mortgage rates.
New home sales rose in December. While there were negative revisions for the third month in a row, activity on net was still stronger than expected. Despite higher mortgage rates, the trend rate of new home sales has plateaued but remains historically elevated, if moderately below 2020 levels. Inventories of new homes for sales rose again. And while months supply dropped with the increase in sales, the supply conditions in the new home market remain notably looser than in the existing home market. Inventories are trending higher and months supply is still slightly above the average of the last ten years. Moreover, median and average sales prices have started to decline. While that is mostly due to activity shifting towards first-time buyers, there are hints of price cutting.
New Home Sales ROSE by 11.9% to 811k, after the prior month was revised  lower to 702k. This compared with market expectations for an increase to 760k, from the unrevised November level of 744k. Sales are now 14.0% BELOW their year-ago level.
The Inventory of Homes Available for Sale
ROSE by 1.5% to 403k. Inventories are now 34.8% ABOVE their year-ago.
Combined with the increase in sales, the Months' Supply dropped to 6.0 months from 6.6 months. This is modestly ABOVE a normal level of 6.0 months.                                                                                        
Home Prices
ROSE with median prices 3.4% ABOVE their year-ago level and with average prices 13.8% ABOVE their year-ago level.