New home sales rise in December after sharp November drop

Sales of new homes rose 1.6% in December after a big decline in November that was even worse than previously thought.

The increase last month pushed sales of new homes to a seasonally adjusted annual rate of 842,000, the Commerce Department reported Thursday, though that was fewer than analysts had projected. And the big drop reported earlier for November's was revised downward further, from 841,000 to 829,000 new homes sold. That's a decline of 12.6% from October.

After a spring slump due to the coronavirus outbreak, housing came back strong in the summer and fall until last month's significant drop. Commerce estimated that 811,000 new homes were sold in 2020, an increase of nearly 19% over 2019's 683,000.

Historically low mortgage rates are helping nudge buyers into the market, but there is still a lack of inventory, which is pushing prices up.

The median price of a new home sold in December jumped to $355,900 up more than 8% from a year ago.

Soaring lumber prices are also adding thousands of dollars to the cost of new homes. Framing lumber prices more than doubled over the summer due to pandemic-related declines in domestic production, according to the National Association of Home Builders. Although lumber prices retreated in the fall, they are back up again near their August peak when NAHB estimated it was adding nearly $16,000 to the price of a new home.

Regionally sales were uneven in December, with the biggest movement in the Midwest where sales jumped more than 30%. Sales in the Northeast and South fell between 5% and 6%, while the West saw sales increase almost 9%.

In a separate report last week, the National Association of Realtors reported sales of existing homes rose 0.7% in December, pushing the entirety of 2020 to a pace not seen since height of the housing boom in 2006.

The housing market has mostly weathered the economic fallout of the pandemic, but economists say the near-term prospects for the economy will remain uncertain until the vast majority of Americans have been vaccinated.

The Commerce Department said Thursday that the U.S. economy shrank in 2020 by the largest amount in 74 years, and the Labor Department reported that layoffs remain elevated, with 847,000 Americans applying for unemployment benefits last week.