April 23, 2021 Reading Time: 3 minutes

Sales of new single-family homes rose sharply in March, increasing 20.7 percent to 1.021 million at a seasonally-adjusted annual rate from a 846,000 pace in February. Sales are an astonishing 66.8 percent above the year ago level (see top of first chart). Sales were up in three of the four regions of the country in March with strong double-digit gains in the Northeast, the South, and the Midwest but a 30.0 percent drop in the West.  From a year ago, sales are also up in three regions: 78.4 percent in the Midwest, 90.1 percent in the South, and 108.7 percent in the Northeast, but down 2.0 percent in the West.

While sales of new single-family homes rose in March, sales in the market for existing single-family homes, which account for around 90 percent of total existing-home sales, fell 4.3 percent, coming in at a 5.30 million seasonally adjusted annual rate. From a year ago, sales are up 10.4 percent. The March pace is the ninth consecutive month above the 5 million mark but is down from a recent peak of 6.01 million in October 2020 (see top of first chart).

The total inventory of new single-family homes for sale was unchanged at 307,000 in March, leaving the months’ supply (inventory times 12 divided by the annual selling rate) at 3.6, down 18.2 percent from February and 44.6 percent below the year-ago level (see bottom of first chart). The median time on the market for a new home was unchanged in March, coming in at 3.6 months.

The total inventory of existing single-family homes rose 3.4 percent to 900,000 but is down 31.3 percent from March 2020. The months’ supply rose to 2.0 from 1.9 in February (see bottom of first chart). 

Potential headwinds for the housing market include rising mortgage rates and elevated home prices. The median sales price of a new single-family home was $330,800, the third decline in a row but still a rise of 0.8 percent from a year ago. The median sale price in March of an existing single-family existing home was $334,500, an 18.4 percent rise over the past year (see second chart).

In addition to elevated home prices, rising mortgage rates are likely to weigh on housing activity in coming months and quarters. While mortgage rates are still extremely low by historical comparison, mortgage rates have begun to rise along with yields on 10-year Treasury notes. The spread of mortgage rates over Treasury yields has narrowed recently and if it returns to historical levels, it also suggests mortgage rates are likely to rise further.

The combination of high prices and rising mortgage rates will hurt affordability and likely contribute to slower housing activity in the future.  It is likely that in time these conditions will significantly impact the overall housing market, but for now it remains one of the brightest areas of the economy with strong demand, tight supply, and rising prices.

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.

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