US New Home Sales Plunge in January as Mortgage Rates Bite

Sales of new US single-family homes fell more than expected in January, signaling a slowdown in housing market activity and the broader economy early in the first quarter, Reuters reports. The sharp decline, as reported by the Commerce Department on Wednesday, is attributed to persistently high mortgage rates and the impact of severe winter weather across much of the country.

This follows recent data indicating a slowdown in retail sales and job growth in January, painting a mixed picture for the US economy.

Despite the decline in sales, the median house price rose to a more than two-year high in January, reaching $446,300. This coincides with a surge in new home inventory to its highest level since late 2007, suggesting a potential shift in the market's balance of supply and demand.

"Today's drop in new home sales is just one more piece of the puzzle and it is becoming clearer, the economic activity in the first quarter is off to a slow-as-molasses start," said Christopher Rupkey, chief economist at FWDBONDS.

New home sales plunged 10.5% to a seasonally adjusted annual rate of 657,000 units in January, significantly below the 680,000 units forecast by economists. The December sales figure was also revised upward to 734,000 units from the previously reported 698,000.

Regional sales were particularly impacted in the Northeast and Midwest, likely due to frigid temperatures. The South, despite experiencing winter storms, also saw a decline in sales. Only the West region experienced an increase, albeit modest, at 7.7%.

The outlook for the busy spring home selling season remains uncertain, with mortgage rates expected to remain near current levels amid ongoing policy uncertainty.

"With mortgage rates still hovering close to 7% and home prices rising at a substantial pace, the near-term prospects for home sales are less than stellar," said Stephen Stanley, chief US economist at Santander U.S. Capital Markets.

The rise in new home inventory to 495,000 units, the highest level since December 2007, could indicate a reluctance among builders to start new projects. This is further supported by a slight decline in permits for future homebuilding in January.

"The overhang of new homes for sale seems partly to reflect a rush in new projects in 2023 and 2024, as homebuilders bet on a significant upturn in demand that has failed to materialize," said Oliver Allen, senior US economist at Pantheon Macroeconomics. "This points to a significant pullback in new residential construction projects over the next few quarters."