Resicom – Holiday Investment – 04-21 – LB

US Sales for New Homes Dropping

US sales for new homes dropped in January for the second month in a row, indicating that the US property market may be losing some of its momentum.

The news follows reports last week that US sales for existing properties also dropped for the second consecutive month in the first month of 2018.

Whilst US sales for both existing and new homes have dropped, prices continue to rise due to a severe lack of available existing housing stock, particularly at the lower end of the market, sidelining some first-time buyers.

The availability of new homes actually increased by 2.4 per cent in January. However, first time buyers tend to steer clear of new builds.

‘New homes usually come with a bigger price tag, something that can turn away many first-time buyers,’ said Bill Banfield, executive vice president at Quicken Loans in Detroit.

The report from the Commerce Department said that new home sales dropped by 7.8 per cent to a seasonally adjusted annual rate of 593,000 units last month, the lowest level since August 2017. Economists polled by Reuters had forecast new home sales, which account for nearly 10 percent of the housing market, rising to a pace of 645,000 units last month.

Sales were down 33.3 per cent in the North-east to their lowest level since August 2016. They dropped 14.2 per cent in the South, which accounts for half of the market for new homes, to a 13-month low. However, sales rose 1.0 per cent in the West and surged 15.4 per cent in the Mid-west.

Economists worry that rising mortgage rates, which are near a four-year high, and a cap on the mortgage interest deduction in the overhauled tax code could slow housing demand from US home buyers this year.

The 30-year fixed mortgage rate in the US rose to an average of 4.40 per cent in the week ended February 22, the highest level since April 2014, from 4.38 per cent in the previous week, according to mortgage finance agency Freddie Mac.

Though US interest rates may not necessarily affect foreign investors, overseas property investors considering the US need to consider their proposed area carefully to ensure that demand remains strong.

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