Sales of New Homes Continue Recent Torrid Pace

The January 2021 annual unit rate of 923,000 is 19% higher than the 774,000 from a year earlier.

By Manuel Gutierrez, Consulting Economist to NKBA
Sales of new homes rose 4.3% in January to an annual rate of 923,000 units. This follows a revised 5.5% jump in the previous month, with an annual sales rate now estimated at 882,000.

Sales of new homes, similar to those of existing homes, continue at the elevated rates maintained since the middle of last year. The sales pace over the last eight months has averaged 922,000 (annualized).

However, new homes had actually been rising throughout 2019, moving up by 100,000 units from January 2019 to January 2020, when they were at an annual rate of 731,000 units. The pandemic shutdown, which drove many consumers to seek and purchase single-family homes, has resulted in even more robust home sales.

Compared to a year ago, new home sales in January were 19% above the earlier rate of 774,000 units.

Three of the country’s four regions contributed to the nationwide spike (Figure 2). The largest gain was in the Midwest, where sales in January came in at a rate of 107,000. Compared to 2020, sales were up 10%.

The West had the second highest increase, with sales rising 7% to a rate of 236,000 units. Despite this positive development, however, sales in the region are still 6% below the 252,000 sold in January 2020.

Sales in the largest region, the South, increased by a more modest 3%, to reach 549,000 units. Sales in this region are also a remarkable 40% higher than January 2020 levels.

The Northeast, smallest of the four regions, saw its sales fall by 14% to an annual rate of 31,000 units. Sales in the region were 9% lower than a year ago. Also, as the top left panel of Figure 2 shows, sales in the Northeast have been declining more or less steadily since the middle of last year.

Along with more sales of new homes, prices on new homes are also on the rise. Figure 3 shows that the average (mean) price of a new home was $409,000 in January, up a steep 4% from the previous month. The average price is 6% higher than a year ago.

However, the median new home price fell in January, albeit modestly, by 2%. The median is defined as the price point where half the homes sold are above it, and half below. Unlike the average price, the median is not influenced by sales of a few very high-priced homes.

A year ago, in January 2020, the median price of a new home was $329,000, or $17,500 below the current level.

It should be noted that the change in new home prices does not necessarily mean that houses are more expensive. Rather, prices move up or down because of the different characteristics of the houses that are available from month to month. Characteristics such as location, the number of special amenities, type of structure, etc., determine the price of a home. Because of this diversity, the average price for all houses sold in a month will fluctuate.

Of note are the large differences in the rate of house appreciation, or differential, among the four regions. These price changes, beginning in 2000, are shown in Figure 4. The height of the bars reflects the average (mean) price change from year to year.