December saw an 8.0% rebound in new home sales, bringing deals during the month to a seasonally adjusted annual rate of 664,000, according to the U.S. Census Bureau and the Department of Housing and Urban Development.
That’s up 8.0% month over month and 4.4% year over year, mostly offsetting the 9.0% monthly sales downshift the new home market experienced in November. November’s sales rate received an upward revision as well, bumped up to 615,000 units from the originally reported 590,000. For the full year, new home sales averaged a pace of 668,000 units, up from 641,000 units in 2022.
December’s sales handily exceeded expectations, with a Reuters poll of economists forecasting a pace of 645,000 units.
The easing of mortgage rates was a chief driver of the pick-up, though robust supply and ebbing home prices also contributed to the gain. With new homes not suffering from the inventory woes plaguing the resale market, the median new home sales price dropped by 3.0% from November and $13.8% from December 2022 to $413,200. Home builders have also continued to be proactive in offering discounts to entice buyers, helping bring median prices down further.
Interestingly, another factor that may be driving down home sales is an ongoing shift in the square footage of newly completed houses. Per Census data, the median floor space of a newly built single-family home was 2,218 square feet in the third quarter last year — marking the third consecutive quarter that the square footage of a median single-family home has shrank.
Prices have followed suit, observed Odeta Kushi, deputy chief economist at First American Financial Corp.
“The price declines may be partially the result of builder price cuts to entice buyers, but it also signals that the ‘mix’ of new homes being sold may have shifted,” she said. “The median price for a new home peaked in October 2022 at approximately $497,000. In that same month, 33% of new homes sold were priced below $400,000. … Forty-seven percent of homes sold were price below $400,000.”
Kushi, like many experts, is optimistic about the new home market’s prospects moving forward, given the fundamentals underpinning its current strength.
“The new-home market has been a bright spot in an otherwise gloomy housing market,” she said. “While the resale side will begin to enter recovery mode alongside lower mortgage rates, the new-home market will likely continue to outperform because builders can still offer incentives, while existing homeowners will still be held back by the rate lock-in effect.”
Builders are positive, too. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index, tracking builder confidence in the single-family home market, jumped seven points to a reading of 44 in January.
Danushka Nanayakkara-Skillington, NAHB assistant vice president for forecasting and analysis, is likewise hopeful, though she notes that the market isn’t without its headwinds.
“While moderating interest rates are a promising sign for new home sales in the year ahead, long-term issues such as a shortage of buildable lots, a lack of skilled labor and excessive regulations will continue to pose challenges for builders,” she said.