On an annualized basis, 811,000 new homes were sold in 2020, 18.7% higher than in the previous year.
By Manuel Gutierrez, Consulting Economist to NKBA
New home sales bounced back in December by a modest 1.6%, equivalent to an annual sales rate of 842,000 homes (Fig. 1). While the gain nowhere near compensated for the 15% loss over the previous four months, when the annual rate of home sales fell from a high of 979,000 units in July, to a rate of 829,000 in November, the full year recorded robust sales.
The monthly sales pace maintained in the second half of 2020 still exceeded that of any month since May 2007. In fact, sales during that month were at the same 842,000 pace.
On an annual basis, 811,000 new homes were sold in 2020, reflecting a significant 18.7% increase over 2019, when 683,000 homes were sold.
Last year’s gains cap a decade of increases in new home sales. Such steady growth is matched only by the runup in home sales between 1990 and 2005 (Figure 2). In that prior period, though, home sales were inflated by inadequate government initiatives and questionable lending practices, such as sub-prime mortgages.
Questionable policies involved some in Congress strong-arming mortgage lender Fannie Mae to loosen its lending rules, lower its standard loan requirements, and engage in the purchase of risky loans. This enabled millions to become homeowners who normally wouldn’t have qualified, only to lose their homes when house prices collapsed and they owed more on their mortgages than the value of the house.
This debacle was followed by a steep 76% drop in home sales between 2005 and 2010.
It has taken a decade to recover from that collapse and, despite that recovery (Figure 2), the U.S. is currently only matching sales levels of the 1970s. Considering that there are twice as many households in the U.S. today as there were in the mid-70s, the current rate of home sales are actually far below that period.
Two of the four regions enjoyed a greater sales pace in December than in November, while the other two experienced declines. (Figure 3.)
New home sales in the Northeast and South dropped in December by approximately the same magnitude. Sales in the Northeast fell by 6% to an annual pace of 31,000 units. However, the region represents only 4% of the U.S. total.
Sales in the South, the largest contributing region, also fell in December, to a rate of 483,000 units. December’s 5% drop mirrors similar declines in the previous three months. Despite the falloff, the South still accounted for 57% of all December sales.
For the two regions that posted increases, new home sales in the Midwest rose a substantial 31% to an annual rate of 94,000 units. The much larger West posted a 9% increase to 234,000 homes (annualized). These increases outpaced losses in the other two regions, resulting in the national 1.6% gain cited above.
On an annual basis, all four regions enjoyed substantial gains in home sales last year, with increases of similar magnitude (Figure 4). The Midwest lead with a 24% increase to 89,000 homes sold. The smallest gain was in the South, which still had a solid 18% increase for a total of 469,000 homes sold.
