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Builders  are in a quandary. They claim they’re feeling better about their business, but the sales numbers are still not reflecting that. The spring market could determine the fate of both the stocks and the earnings of the biggest builders.

Sales of newly built homes dropped in January, down almost 7 percent month to month and down 4 percent compared with last year. This was surprising according to the National Association of Home Builders.

“We all know that the pace of housing transactions has slowed to no growth as high home prices combined with higher mortgage rates froze behavior. Now with the latter seeing relief, the next few months are big in measuring the state of the industry and consumer taste for big-ticket, life-altering decisions.”

Peter Boockvar of Bleakley Advisory Group

The average rate on the 30-year fixed mortgage jumped more than 5 percent in November but fell back in December. It continued falling in January and has now settled around 4.5 percent, according to Mortgage News Daily. Mortgage applications to purchase a home are basically flat compared with a year ago. Sales of existing homes appear to be picking up, but new homes come at a price premium, and today’s buyers are tentative.

The price of a newly built home sold in January did decline 3.8 percent, but that was due to a shift in the mix of homes selling. About 37 percent of sales were of homes just below the median price, a far greater share than a year ago (27%).

“Although existing home buyers are capitalizing on the recent decline in mortgage rates, it didn’t spark buyer interest in new homes in January. Given the rising cost pressures builders are facing, this could suggest continued difficulty for new homes and new construction ahead.” -Damielle Hale of Realtor.com

The supply of newly built homes also rose to a three-month high, and analysts report a growing number of so-called “spec” homes. During the housing crash, builders were only building homes that already had buyers under contract. Builders could be sitting on more unsold homes, which will cost them in both taxes and maintenance.

The data on new home sales is volatile, and a three-month average puts sales at the highest level since June. Both sales and construction, are well below historical norms, and demand has been incredibly sensitive recently to interest rates. While builders report strong expectations for sales over the next six months, they are also reporting sub-par buyer traffic through their model homes.