The homebuying boom of 2020 appears to have lost some steam in November.
Sales of newly built homes fell sharply in November to a seasonally adjusted annual rate of 841,000, according to data released by the Census Bureau Wednesday. That was below the estimates of Wall Street’s economists and 11 percent lower than the downwardly-revised October pace.
New home sales make up for a small part of the overall housing market but can have outsized impacts on the economy. Homebuilding is labor-intensive, requiring workers up and down the skill-ladder. New homes get outfitted with new appliances, driving sales of durable goods. Even car sales are correlated with new home sales.
A report on previously owned homes released Tuesday showed falling sales as well. Together, the reports suggest that the housing market is dimming.
Sales fell in all parts of the country, led by a 43 percent decline in the Midwest. Sales in the West fell 17.3 percent. Sales in the South, the biggest market for new homes, fell by just 1.9 percent. They were down 2.5 percent in the Northeast.
The median price of new homes for sale was $335,300, a decline from October but 5 percent above the year-ago level. Sales held up better at the higher end of prices than at the lower end, with sales of homes priced over $750,000 actually rising a bit.
Steeply rising prices may be cooling the desire of some city-dwellers to move into the suburbs in search of more space, privacy, and safety from violent crime.
Despite the slowdown in November, new home sales were up 20.8 percent year-over-year in November. Year-to-date sales are up 19.1 percent. So although the market cooled, it remains hot by historical standards.
Household income and spending declined in November, so part of the sales decline may be due to tightening financial constraints on families. Rising unemployment and layoffs may also be discouraging families from locking money up in a home purchase.
The seeming victory of Joe Biden, who has promised radical new housing policies aimed at reshaping the suburbs, may also be discouraging homebuyers. The prospect of higher capital gains taxes and higher income taxes could also weigh on demand for housing.
The monthly data on new home sales can be volatile and is frequently subject to large revisions. Most analysts would look to longer-run trends rather than assuming a major shift has occurred because of a single report. In the November report, however, the higher sales of earlier months received significant downward revisions, which may indicate that some of the strength of the housing market was exaggerated by inflated numbers.