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WASHINGTON - Sales of new U.S. single-family homes fell to a nine-month low in February amid bitterly cold weather, and expensive lumber and rising mortgage rates could cool the housing market this year.
The report from the Commerce Department on Tuesday followed on the heels of data this month showing a plunge in homebuilding and permits for future construction in February. There has been demand for bigger houses to accommodate home offices and remote schooling as the COVID-19 pandemic lingers.
But a record jump in lumber prices and labor and land shortages is increasing costs for builders, hampering their ability to ramp up construction. The dearth of homes is boosting house prices, which together with a sustained rise in mortgage rates since February, is making homeownership more expensive for first-time buyers.
"The residential housing market will continue to support economic growth, but risks are to the downside," said Abbey Omodunbi, an economist at PNC Financial in Pittsburgh, Pennsylvania. "The run-up in prices and rising mortgage rates will erode affordability and likely weaken demand in 2021."
New home sales plunged 18.2% to a seasonally adjusted annual rate of 775,000 units last month. Economists polled by Reuters had forecast new home sales would tumble 6.5% to a rate of 875,000 units in February. Though new homes account for a small share of total sales, they are a leading indicator for the housing market as they are counted at the signing of a contract.
Sales decreased in all four regions. New home sales are drawn from a sample of houses selected from single-family building permits, which dropped 10% in February.
Last month's unseasonably cold weather, including severe winter storms in Texas and other parts of the densely populated South region, depressed retail sales, production at factories and homebuilding. Warmer temperatures, an acceleration in the pace of coronavirus vaccinations and the White House's $1.9 trillion COVID-19 pandemic rescue package are expected to spur a sharp rebound in economic activity in March.
New home sales increased 8.2% on a year-on-year basis in February, benefiting from an acute shortage of previously owned homes. The National Association of Realtors reported on Monday that the inventory of existing homes remained stuck at record lows in February. (Graphic: New home sales, https://graphics.reuters.com/USA-STOCKS/azgvodzdbpd/nhs.png)
New home sales last month were concentrated in the $200,000-$749,000 price range. Sales in the below-$200,000 price bracket, the sought-after segment of the market, accounted for only 4% of transactions last month.
Stocks on Wall Street slipped. The dollar rose against a basket of currencies. U.S. Treasury prices were higher.
The 30-year fixed-rate mortgage has risen to a nine-month high of 3.09%, according to data from mortgage finance agency Freddie Mac. Mortgage rates have risen in tandem with U.S. Treasury yields, which have spiked in anticipation of stronger economic growth this year and higher inflation from the massive fiscal stimulus.