HousingWireHousingWire
Today’s report on new home sales reveals a slight shortfall in sales estimates. However, it also emphasizes a more critical issue: the currently elevated supply of new homes. This surplus has significantly contributed to the stagnation of housing permits for some time.
By addressing and reducing the excess inventory, homebuilders can work toward creating a more balanced market and fostering a revival in housing permits. The only issue is that it requires lower mortgage rates and some clarity on tariffs because, as we all know by now, the builders aren’t the March of Dimes.
Some key data lines from the Census report:
New Home Sales: Sales of new single-family houses in February 2025 were at a seasonally adjusted annual rate of 676,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 1.8 percent (±18.6 percent)* above the revised January rate of 664,000 and is 5.1 percent (±13.9 percent)* above the February 2024 estimate of 643,000.
For Sale Inventory and Months’ Supply:The seasonally-adjusted estimate of new houses for sale at the end of February was 500,000. This represents a supply of 8.9 months at the current sales rate.
The charts below illustrate that new home sales data has been in a stable range for some time while active inventory continues to increase. This situation presents a headache for some builders and the varying stages of their supply can lead to some caution. There is one particular data point that builders are closely monitoring, which could help guide their strategies moving forward and that’s the total completed units for sale.
Homebuilders are not facing the same new home challenges they did in 2022, such as sales crashing from an elevated level or major cancellations, but they are not seeing substantial growth either. When mortgage rates decline, demand tends to increase and then sales often diminish when rates rise. New home sales have remained relatively stable within a certain range in recent months. Furthermore, the availability of completed units for sale plays a role in this overall trend.
Reflecting on the past few decades, we see that when completed units for sale reach approximately 120,000 builders tend to be more cautious about obtaining additional housing permits. Today, that number is at 119,000. This sentiment seems to echo in the current market, especially with the potential impact of tariffs anticipated in 2025. This context helps explain the recent decline in builder surveys, highlighting the need for a thoughtful approach to housing development moving forward.
While new home sales missed estimates today, builders are navigating a landscape characterized by increasing supply and some pressure on profit margins. If you’re interested in why housing permits haven’t seen a rise recently, it primarily pertains to supply and profit margin dynamics.
If mortgage rates approach 6% and potentially stabilize, there’s a glimmer of hope for homebuilders. Historically, their confidence has tended to improve at this rate level in the past few years. However, given the current climate of uncertainty in the market, don’t hold your breath for a housing construction boom just yet. It looks like we’re in for a wait before we see significant growth in this sector!
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