Nationwide rising interest rates are adding to affordability issues within the housing market and new home sales are not immune, reportedly dropping 7.8% in January. In addition to rising interest rates, tax reform may also be playing a role in the falling numbers, as the tax benefits of higher priced homes have been curtailed.
Yet, while new homes sales have fallen, inventory has risen and now stands at 6.1 months of supply. When inventory constraints have been dire for so long, why then do we now see sales decline? Is it possible homebuilders, concentrating on the move-up market, are now caught by rising interest rates and tax reform?
Joseph Kircher, Senior Economist at Realtor.com, stated on CNBC, that there could be saturation in the higher-priced end of the market, and builders may soon be compelled to “follow the market and build more moderately priced homes.”
In BUILDER magazine, Tendayi Kapfidze, Chief Economist at LendingTree, noted a rash of new homes sales priced over $500,000 in December. While homes in this price segment composed 22% of sales in December, this segment fell back to 16% in January. The jump in sales over $500,000 in December may have been the result of homebuyers who “rushed into these properties to have their mortgages grandfathered under the old mortgage deduction limits.”
Kapfidze further went on to state, on a more promising note, that new lower corporate tax rates should increase homebuilder profits, and could incentivize homebuilders to build more homes “at lower prices where new supply has been lacking.”