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February New Home Sales Fall 18.2%: A Temporary Setback?
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Severe winter weather took a toll on U.S. housing market in February. Sales of new U.S. single-family homes dropped to a nine-month low in February due to severe cold weather, rise in lumber prices and a lack of supply.
Sales of newly constructed single-family homes, accounting for roughly 10% of all U.S. home sales, fell 18.2% last month from the prior month to a seasonally adjusted annual rate of 775,000 units, per data released on Mar 23 by the Commerce Department. The February figure missed the consensus forecast by 10.6%. Nonetheless, the reading increased 8.2% from a year ago. Notably, sales dropped in all regions across the country last month.
Although new homes comprise a small portion of total sales, the metric is a major indicator for the ongoing housing market scenario as it is counted at the signing of a contract. Inclement weather arising from severe cold weather, including severe winter storms in Texas and other parts of the South region, had a major impact on construction.
Meanwhile, housing starts tumbled 10.3% to a seasonally adjusted annual rate of 1.421 million units last month, the lowest level since last August. Starts were also down 9.3% on a year-on-year basis in February. Permits for future homes dropped 10.8% to 1.682 million units last month.
Also, covid-induced disruptions in supply chain have been pushing prices higher for commodities comprising softwood lumber. Notably, construction input prices grew 2.1% in February 2021, according to an Associated Builders and Contractors analysis of U.S. Bureau of Labor Statistics’ Producer Price Index data. Nonresidential construction input prices also inched up 2.1% for the month.
Also, construction input prices for February increased 7.6% from a year ago, and nonresidential construction input prices jumped 7.1% during that period. Softwood lumber and natural gas witnessed the largest year-over-year increases, rising 79.7% and 76.2%, respectively. Prices in the iron and steel category expanded 22% from a year ago, and steel mill product prices were up 20%.
Apart from inflationary risks, mortgage rates moved higher in tandem with Treasury yields. The 30-year fixed-rate mortgage grew to 3.05%, according to the latest data from mortgage finance agency Freddie Mac. Notably, Freddie Mac will release its weekly mortgage rate today.
Though mortgage rates are still hovering around 3%, remaining low by historical standards, it is creating pressure for homeowners, especially first-time buyers. Meanwhile, the median sales price rose 5.3% from a year ago to $349,400, according to Tuesday’s Commerce Department report. Also, low inventory remains a challenge for home buyers, pushing prices higher.
Higher borrowing costs along with rising home prices could put pressure on affordability of the homeowners and may keep away prospective buyers out of the market.
Upbeat Economic Views & Stimulus Plan Are Hopes
The new home sales report on Tuesday marked the first decline in sales of new homes over the past two months. Nevertheless, despite the hiccups stemming from extremely tight supply and rising prices, home sales have been increasing at a solid pace. In fact, the new home sales reading moved 17% north from a year ago, depicting the housing market’s strength.
Market pundits are of the opinion that skyrocketing prices and rising mortgage rates will not impede the U.S. housing market momentum. Increased delays in getting their products to their buyers have been temporarily impacting the market. Nevertheless, builders are witnessing higher demand and expect sales to accelerate. This is clearly evident from the latest builder sentiment survey of the National Association of Home Builders or NAHB. The measure of confidence among U.S. homebuilders fell by only two points to 82 in March from February. Despite the decline in component measuring current sales conditions, buyer traffic remained high, and sales expectations over the next six months accelerated amid strong demand conditions.
Although higher inflation and unemployment are major impediments for the construction sector, broad-based economic growth supported by sustained vaccination drive and stimulus program is expected to be a major tailwind for the sector.
Meanwhile, the U.S. economy is heading toward the strongest growth in nearly 40 years, as stated by the Federal Reserve or Fed. The Fed expects the economy to accelerate speedily this year and now envisions the economy to expand 6.5% this year, up from the previous expectation of 4.2% in December 2020.
Also, a boost in the personal income owing to the government’s solid stimulus package will be a boon for residential market. Per the latest report of Bureau of Economic Analysis, personal income advanced 10% in January, primarily due to $600 stimulus checks from the government. Household wealth increased almost $2 trillion for the month, while spending rose just 2.4%. Again, Congress approved a comprehensive $1.9-trillion coronavirus relief package on Mar 10, 2021 that provides another round of payments to consumers, aids to states and localities, along with funding for COVID-related programs.
The housing industry has gained 102.6% over the past year, outperforming the S&P 500 composite’s 61.2% rally. Presently, notably housing names like Century Communities, Inc. (CCS - Free Report) , Beazer Homes USA, Inc. (BZH - Free Report) , Lennar Corporation (LEN - Free Report) , M.D.C. Holdings, Inc. (MDC - Free Report) , Toll Brothers (TOL - Free Report) and Taylor Morrison Home Corporation (TMHC - Free Report) are cashing in on the positive aspects of the economic view. Century Communities currently sports a Zacks Rank #1 (Strong Buy), while the others carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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February New Home Sales Fall 18.2%: A Temporary Setback?
Severe winter weather took a toll on U.S. housing market in February. Sales of new U.S. single-family homes dropped to a nine-month low in February due to severe cold weather, rise in lumber prices and a lack of supply.
Sales of newly constructed single-family homes, accounting for roughly 10% of all U.S. home sales, fell 18.2% last month from the prior month to a seasonally adjusted annual rate of 775,000 units, per data released on Mar 23 by the Commerce Department. The February figure missed the consensus forecast by 10.6%. Nonetheless, the reading increased 8.2% from a year ago. Notably, sales dropped in all regions across the country last month.
Challenges: Inclement Weather, Rising Input Prices, Mortgage Rates
Although new homes comprise a small portion of total sales, the metric is a major indicator for the ongoing housing market scenario as it is counted at the signing of a contract. Inclement weather arising from severe cold weather, including severe winter storms in Texas and other parts of the South region, had a major impact on construction.
Meanwhile, housing starts tumbled 10.3% to a seasonally adjusted annual rate of 1.421 million units last month, the lowest level since last August. Starts were also down 9.3% on a year-on-year basis in February. Permits for future homes dropped 10.8% to 1.682 million units last month.
Also, covid-induced disruptions in supply chain have been pushing prices higher for commodities comprising softwood lumber. Notably, construction input prices grew 2.1% in February 2021, according to an Associated Builders and Contractors analysis of U.S. Bureau of Labor Statistics’ Producer Price Index data. Nonresidential construction input prices also inched up 2.1% for the month.
Also, construction input prices for February increased 7.6% from a year ago, and nonresidential construction input prices jumped 7.1% during that period. Softwood lumber and natural gas witnessed the largest year-over-year increases, rising 79.7% and 76.2%, respectively. Prices in the iron and steel category expanded 22% from a year ago, and steel mill product prices were up 20%.
Apart from inflationary risks, mortgage rates moved higher in tandem with Treasury yields. The 30-year fixed-rate mortgage grew to 3.05%, according to the latest data from mortgage finance agency Freddie Mac. Notably, Freddie Mac will release its weekly mortgage rate today.
Though mortgage rates are still hovering around 3%, remaining low by historical standards, it is creating pressure for homeowners, especially first-time buyers. Meanwhile, the median sales price rose 5.3% from a year ago to $349,400, according to Tuesday’s Commerce Department report. Also, low inventory remains a challenge for home buyers, pushing prices higher.
Higher borrowing costs along with rising home prices could put pressure on affordability of the homeowners and may keep away prospective buyers out of the market.
Upbeat Economic Views & Stimulus Plan Are Hopes
The new home sales report on Tuesday marked the first decline in sales of new homes over the past two months. Nevertheless, despite the hiccups stemming from extremely tight supply and rising prices, home sales have been increasing at a solid pace. In fact, the new home sales reading moved 17% north from a year ago, depicting the housing market’s strength.
Market pundits are of the opinion that skyrocketing prices and rising mortgage rates will not impede the U.S. housing market momentum. Increased delays in getting their products to their buyers have been temporarily impacting the market. Nevertheless, builders are witnessing higher demand and expect sales to accelerate. This is clearly evident from the latest builder sentiment survey of the National Association of Home Builders or NAHB. The measure of confidence among U.S. homebuilders fell by only two points to 82 in March from February. Despite the decline in component measuring current sales conditions, buyer traffic remained high, and sales expectations over the next six months accelerated amid strong demand conditions.
Although higher inflation and unemployment are major impediments for the construction sector, broad-based economic growth supported by sustained vaccination drive and stimulus program is expected to be a major tailwind for the sector.
Meanwhile, the U.S. economy is heading toward the strongest growth in nearly 40 years, as stated by the Federal Reserve or Fed. The Fed expects the economy to accelerate speedily this year and now envisions the economy to expand 6.5% this year, up from the previous expectation of 4.2% in December 2020.
Also, a boost in the personal income owing to the government’s solid stimulus package will be a boon for residential market. Per the latest report of Bureau of Economic Analysis, personal income advanced 10% in January, primarily due to $600 stimulus checks from the government. Household wealth increased almost $2 trillion for the month, while spending rose just 2.4%. Again, Congress approved a comprehensive $1.9-trillion coronavirus relief package on Mar 10, 2021 that provides another round of payments to consumers, aids to states and localities, along with funding for COVID-related programs.
The housing industry has gained 102.6% over the past year, outperforming the S&P 500 composite’s 61.2% rally. Presently, notably housing names like Century Communities, Inc. (CCS - Free Report) , Beazer Homes USA, Inc. (BZH - Free Report) , Lennar Corporation (LEN - Free Report) , M.D.C. Holdings, Inc. (MDC - Free Report) , Toll Brothers (TOL - Free Report) and Taylor Morrison Home Corporation (TMHC - Free Report) are cashing in on the positive aspects of the economic view. Century Communities currently sports a Zacks Rank #1 (Strong Buy), while the others carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Time to Invest in Legal Marijuana
If you’re looking for big gains, there couldn’t be a better time to get in on a young industry primed to skyrocket from $17.7 billion back in 2019 to an expected $73.6 billion by 2027.
After a clean sweep of 6 election referendums in 5 states, pot is now legal in 36 states plus D.C. Federal legalization is expected soon and that could be a still greater bonanza for investors. Even before the latest wave of legalization, Zacks Investment Research has recommended pot stocks that have shot up as high as +285.9%
You’re invited to check out Zacks’ Marijuana Moneymakers: An Investor’s Guide. It features a timely Watch List of pot stocks and ETFs with exceptional growth potential.
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