New home sales rose for a fourth consecutive month in March as buyers increasingly turned to builders due to ongoing low inventory of existing homes.
Sales of newly built homes were up 9.6% month over month from February’s downwardly revised total, finishing March at a seasonally adjusted annual rate of 683,000 units, according to data jointly released by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.
That’s the fastest sales pace for new homes in a year. On a year-over-year basis, sales are still down 3.4%, but the pattern of monthly gains offers hope that market momentum is trending toward stability.
There were several factors at play to impact March new home sales, including many builders’ ongoing strategy of incentivizing sales with discounts and interest rate buydowns. Inventory on the resale side remains scarce, with high interest rates keeping many homeowners locked into in their current residences and unwilling to switch to a new home with a higher-cost loan. This has helped new homes to increasingly gain market share, with new homes making up 33.2% of single-family housing inventory in March. That’s compared to only 17.8% in the year before the COVID-19 pandemic.
Maybe the biggest influence on March sales activity was the mid-month emergence of banking instability. Volatility from the high-profile closures of Silicon Valley Bank and other regional institutions drove interest rates down, causing affordability-seeking buyers to race from the sidelines.
“The average Freddie Mac mortgage rate gradually fell from near 6.7% at the beginning of March to 6.3% at the end of the month, and this helped to push new home sales higher in March,” explained Danushka Nanayakkara-Skillington, assistant vice president for forecasting and analysis at the National Association of Home Builders (NAHB).
NAHB chair Alicia Huey implied that sales could be even stronger were it not for the residential construction industry’s continuing struggles with high costs and input disruptions.
“Sales are down 3.4% compared to a year ago because of the shortage of electrical transformer equipment and building material price volatility,” Huey said.
New home prices continued to grow in March, continuing February’s rebound after a precipitous January decline. Sales prices grew to $449,800, up 3.8% from February and up 3.2% year over year.
As for new home supply, strong activity helped push inventory down 9.5% in March to an estimate of 432,000 units, although it was still healthy at 7.6 months at the current sales pace. Completed inventory is up 119% from one year prior, but it still comprises only 16% of total new home inventory.