New home sales downshifted by 0.3% month over month in February, receding to a seasonally adjusted annual rate of 662,000 units as mortgage rates edged closer to 7%.
The U.S. Census Bureau and the Department of Housing and Urban Development reported the latest figures, while also upwardly revising January’s sales rate from 661,000 to 664,000. February’s pace remains up annually, a 5.9% improvement from the estimate of 625,000 during the same month one year prior.
The minute decline is a contrast to February’s existing home sales, which surged by 9.5% from January due in part to incremental growth in listed inventory. The shortage in existing home listings has been buttressing new home transactions for months, so the inventory improvement on the resale side may have negatively impacted new home sales.
It’s likely, though, that the dramatic divergence is largely due to how data for the two subsectors is compiled: New home sales are recorded when contracts are signed, while existing home sales are measured when the transactions close. Closings often lag by a couple of months, so February weakness in new home sales bears watching as a potential bellwether of how increasing rates impact short-term buyer demand in the residential market as a whole.
New home builders have reacted to worsening affordability by leaning again into discounts as incentives for buyers. The median price for a new home was $400,500 in February, down 19.4% from the recent high of $496,800 set in October to reach the lowest price in more than two years.
“Our latest builder surveys show that roughly one-quarter of builders reported cutting home prices in March,” said Robert Dietz, chief economist at the National Association of Home Builders. “The price cuts, in combination with building slightly smaller homes, can be seen in today’s data that show a 7.6% year-over-year decline for median new home prices.”
Rich new home supply is also contributing to the softening of prices. The seasonally adjusted estimate of new houses for sale at the end of February was 463,000. That’s a supply of 8.4 months at the current sales rate, up from 8.3 months in January.
