New home sales saw an increase in January, with the help of declines in mortgage rates and home prices, and an increased use of builder incentives.
The National Association of Home Builders (NAHB) reported that newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau demonstrated that sales of newly built, single-family homes in November increased 7.2% to a rate of 670,000, the fourth consecutive monthly increase.
New home sales have been continuously rising since October, increasing by 7.5% from September to October, 5.8% from October to November and 2.3% from November to December. However, the current January rate is 19.4% below that of this time last year.
“The latest HMI survey shows 57% of builders are using incentives to bolster sales, including providing mortgage rate buy-downs, paying points for buyers and offering price reductions,” said Alicia Huey, chairman of the NAHB. “Buyer incentives, along with stabilizing mortgage rates during the month of January, increased the pace of new home sales for the month. However, in a sign of current market weakness, sales are down 19.4% compared to a year ago.”
Regionally, new home sales fell in three regions, down 19.4% in the Northeast, 6.9% in the Midwest and 7.3% in the West. The only region that saw an increase was the South, at 17.1%.
The estimate of new houses for sale at the end of January was 439,000, which represents a supply of 7.9 months at the current sales rate (a measure near six months is considered balanced). Completed, ready-to-occupy inventory is up 115% from one year ago, from 34,000 last year to 73,000 in January. This inventory type, however, remains at only 17% of total inventory.
The median new home sale price was $427,500, down 8.2% from December and the third straight monthly decline from the October peak of $496,800. The average sales price was $474,400.
“Even though new home sales edged higher in January, the recent uptick in mortgage rates would imply continued weakness in the coming months,” said Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis. “In terms of affordability, the median price is down for the third straight month and is down compared to a year ago.”
Hannah Jones, an economic research analyst at realtor.com®, commented that “While single-family home construction remained low in January, builder sentiment started to recover in February, reaching the highest level since September 2022. As buyer demand waned in 2022, builders pivoted to multifamily construction, setting the market up for ample rental supply in the coming year. While more rental supply will provide households with more choices, this pivot does little to make progress of the home supply gap that affects potential buyers.”
“Months supply has fallen each month since September as the slowdown in single-family home construction moves through the pipeline. The largest share of new homes for sale continued to be homes under construction in January,” continued Jones. “However, the share of homes sold but not started ticked up significantly in January, indicating that buyers are looking to lock in a good deal now, before construction has started. As long as home supply remains scarce, buyer competition will put upward pressure on prices.”