January New-Home Sales Drop Slightly After Increase in Interest Rates

New home sales dropped 4.5% in January to a seasonally adjusted annual rate of 801,000 as demand remained steady despite rising interest rates, NAHBNow reports. Production bottlenecks are slowing new home construction and leaving an inadequate supply of homes on the market, but buyers don’t seem to be deterred. In the meantime, rising costs of building materials are causing steady increases in home prices, but higher mortgage rates could slow demand in the coming months and lead to much-anticipated market deceleration.

“New home prices continue to rise as the cost of materials increases,” said NAHB Chief Economist Robert Dietz. “Higher mortgage rates will slow home buying demand over the course of 2022 and the Russia-Ukraine crisis will add short-term volatility to the bond market.”

A new home sale occurs when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the January reading of 801,000 units is the number of homes that would sell if this pace continued for the next 12 months.

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