Strong demand stemming from low interest rates, favorable demographics, and a suburban shift for home building to smaller, more affordable housing markets helped to lift new home sales in January 2021, but rising lumber and material costs threaten to blunt this momentum. Sales of newly built, single-family homes in January rose 4.3% to a 923,000 seasonally adjusted annual rate, from an upwardly revised December reading, according to recently released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

“Historically low mortgage rates and solid demand spurred an increase in new home sales in January, with the sales pace more than 19 percent higher than a year ago,” said Chuck Fowke, chairman of the National Association of Home Builders (NAHB) and a custom home builder from Tampa, Fla. “However, rising affordability issues are looming this year, particularly increasing building material costs, including lumber, which is adding $24,000 to the price of a typical newly-built home. Builders also cite rising regulatory issues as a potential concern.”

“With existing home inventory at all-time lows, the demand for new construction remains strong,” said Robert Dietz, NAHB’s chief economist. “Though, rising building and development costs, combined with recent increases in mortgage interest rates, threaten to exacerbate existing affordability conditions. Builders are exercising discipline to ensure home prices do not outpace buyer budgets.”

A new home sale occurs when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction, or completed. In addition to adjusting for seasonal effects, the January reading of 923,000 units is the number of homes that would sell if this pace continued for the next 12 months.

Inventory remains low at just a four-month supply, with 307,000 new single-family homes for sale, 6.3% lower than January 2020. The median sales price was $346,400, up 5.3% over the $328,900 median sales price posted a year earlier.

Regionally, new home sales declined 13.9% in the Northeast. New home sales increased in the other three regions: by 12.6% in the Midwest, 3% in the South, and 6.8% in the West.

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