New home sales rose in January from December, as mortgage rates eased off their highs of the past year at the start of 2023.
Sales of newly constructed homes were up 7.2% in January from December, but fell 19.4% from a year ago, according to a joint report from the US Department of Housing and Urban Development and the US Census Bureau. January’s month-over-month gain was the same as an upwardly revised 7.2% jump in December from November, and suggests the housing market may be stabilizing.
Sales of new single‐family houses were at a seasonally adjusted annual rate of 670,000 last month, up from a revised 625,000 in December. Sales were down from last year’s estimated rate of 831,000. It was the strongest sales pace since March 2022.
Mortgage rates eased in January and ended the month nearly a point lower than they were at the beginning of November when they topped 7%. Rates have since pivoted and are trending up again on continuing inflation fears.
In a bit of good news for home buyers, prices of new homes dropped from December, and also fell from a year ago for the first time since August 2020. The median price for a new home dropped to $427,500 in January, down from $465,600 the previous month. And it was 0.7% lower than the $430,500 median price a year ago.
“New home sales prices dropped precipitously in January to the lowest median price since February of last year,” said Robert Frick, corporate economist at Navy Federal Credit Union. “While sales are still depressed from a year ago, this shows another crack in the housing market that should benefit potential homebuyers, especially when mortgage rates drop.”
New construction homes filling a gap in existing home inventory
The demand to buy is there, said Kelly Mangold of RCLCO Real Estate Consulting, particularly when there is flexibility by builders on price. But in addition to volatile mortgage rates, another challenge for many buyers has been finding homes on the market to buy.
“Price adjustments and builder incentives helped to push the sales pace in a positive direction,” she said. “January had the lowest level of existing home sales in over a decade – and motivated buyers are increasingly seeking new homes because there is limited resale inventory available.”
New home sales do not require a seller to part with their attractive ultra-low mortgage rate to get a home on the market.
“Mortgage rates are spooking sellers looking to upgrade when they calculate the potential increase in their monthly payments, and the hesitation to put existing homes on the market is allowing new construction homes to have less competition,” she said.
A low flow of new listings from existing homes left buyers wanting more inventory to choose from and new construction was able to step in and help fill the gap slightly, said Nicole Bachaud, a senior economist at Zillow.
“The backlog of new construction homes continues to emerge into the market just in time for the spring shopping season,” she said. “Many home builders are offering incentives to buyers, sweetening the deal just enough to bump sales from the month prior.”
While sales are still far below levels seen a year ago, said Bachaud, this market may be settling into a quieter one — one with a slower pace than during the pandemic, fewer homes for sale, and fewer transactions mostly due to affordability challenges.
“There is still a large chunk of new construction homes currently under construction, and when those homes hit the market, especially over the next few months, we will see spring home buyers – those who can afford the higher new construction price tags – having more options and opportunities to break into homeownership,” she said.