Comments on: New Home Sales Slip in January https://eyeonhousing.org/2022/02/new-home-sales-slip-in-january/ National Association of Home Builders Discusses Economics and Housing Policy Thu, 24 Feb 2022 19:25:38 +0000 hourly 1 By: Robert Dietz https://eyeonhousing.org/2022/02/new-home-sales-slip-in-january/#comment-1905526 Thu, 24 Feb 2022 19:25:38 +0000 https://eyeonhousing.org/?p=31497#comment-1905526 In reply to John White.

A clarifying note: existing home sales data are based on closed transactions, but the new home sales data reported in this post are based on signed contracts (they are the equivalent of pending homes sales but for new construction). These sales are based on contracts signed in January with rates applicable just a few weeks ago.

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By: John White https://eyeonhousing.org/2022/02/new-home-sales-slip-in-january/#comment-1905497 Thu, 24 Feb 2022 19:03:21 +0000 https://eyeonhousing.org/?p=31497#comment-1905497 These are sales that closed escrow in January and many of these sales were likely made six to 9 months prior when interest rates were around 2.8% to 2.9% for a 30 year FRM. The Freddie Mac Mortgage Survey for last week (2/17) reported that rate to have increased to 3.92%, an increase of over 100 basis points.

Ordinarily, an increase of 1% in rate would not cause a panic but, since rates have been held artificially low since 2009, it represents an increase of over 35%. Rates have increased 70 basis points since January 6th alone and the FED will not be increasing short term rates until next month, likely 50 basis points.

This will undoubtedly slow sales but the problem builders should be focused on is protecting their backlog. Because of supply chain induced construction delays, most have much larger than normal backlogs and most sales were at record high prices.

The fact of the matter is that sales in the backlogs are at risk of being lost because the buyers can no longer qualify for the needed mortgage. If these potentially lost sales can be identified early on, many may be saved. I strongly recommend that builders conduct a thorough review of sales in their backlog to identify these potential losses and work with lenders to avoid as many lost sales as possible.

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