New homes sales took a massive hit in December, recording their largest drop in over a year. The combination of a slower holiday season, frigid temperatures nationwide, high buyer demand, and low housing inventory resulted in a stark drop in sales.
- New home sales dropped 9.3% month-over-month in December
- Reuters economists predicted new home sales would only drop 7.9% in December
- A strong labor market has created strong housing demand and inventory cannot keep pace
Home sales in the US took a hit in December. New home sales noticeably fell more than expected to a mere 625,000 units, down from 689,000 units in November (revised down from 733,000). Unseasonably cold temperatures across the nation also could have played a role in tempering new home sales.
Data for new home sales is drawn from permits and can be volatile month-to-month. For example, new homes sales in the South rose 6.6% in November, but dropped 9.8% in December. New sales in the Midwest fell 10%.
Yearly sales trends, however, paint a different picture. New home sales surged 8.3% as a whole in 2017, growing to a monthly average 608,000 units sold.
Housing demand is strong enough to sustain consistent month-over-month growth in sales, but low inventory is strictly inhibiting buyer options. There were 295,000 homes on the market in December, a 3.9% month-over-month increase.
Despite this solid growth in inventory, the current housing market supply is still considered below a healthy balance between supply and demand. Ideally, it should take six months to clear the inventory based on sales pace. At December’s sales pace, it would take 5.7 months to clear the inventory, up from 4.9 months in November.