New Home Sales Hit Record in 1999
Advisory Report - February 2000
New Home Sales Hit Record in 1999
Sales of new single-family homes reached a record high 904,000 units in 1999 as good weather conditions contributed to a year-end boost in December, according to the Commerce Department's report on February 2, 2000.
"All the fundamentals were in place for strong sales in the last two years," said Robert Mitchell, a home builder from Rockville, Md., and the newly elected president of the National Association of Home Builders (NAHB). "The healthy economy, low interest rates, rising incomes, low unemployment and stock market gains all contributed to exceptionally strong demand for new homes and, as a result, we had back-to-back record-breaking years in 1998 and 1999."
Last year’s 904,000 sales represent a 2 percent increase from the record 886,000 sales in 1998. Sales of new single-family homes rose in three out of four regions in 1999. The Northeast was the only region posting a decline, of 6.2 percent to 76,000 units. Sales of new homes rose 4.9 percent in the Midwest, 2.3 percent in the South and 2.5 percent in the West, to 172,000 units, 407,000 units and 249,000 units, respectively.
Good weather conditions contributed to a strong year-end showing in 1999, with sales of new single-family homes in December rising 4.5 percent from the previous month to a seasonally adjusted annual rate of 900,000 units. The gain was largely due to an increase of more than 90 percent in the Northeast, where the favorable weather had an especially dramatic effect. More moderate gains of 7.1 percent and 1.6 percent were recorded in the South and West, respectively, while the Midwest recorded a 22.6 percent decline.
The number of new homes for sale in December rose 1.3 percent, continuing a gradual upward trend that has been underway since early 1997. The months’ supply of new homes for sale was 4.4 in December, up from 3.8 months’ supply a year earlier.
"For the year 2000, we’re expecting about a 7.3 percent decline from 1999’s exceptional pace of new single-family home sales, due in part to tighter monetary policy and higher mortgage rates," said Mitchell. "Even with that projected slip, this would be the third best year on record, with 840,000 sales."
Mitchell said long-term mortgage rates are up about one and a half points from a year ago, to 8.25 percent, and that this increase – along with further Fed tightening – will likely have a gradual binding effect on the market.
"Our latest surveys indicate that home builders are expecting some softening of demand as a result of higher rates," Mitchell added, "although in some markets that will be a relief after many months of high demand amid continuing shortages of skilled labor and certain construction materials."