In another small but hopeful signal that the flagging residential market may be clawing out of its funk, new single-family home sales posted a third consecutive monthly gain in December, rising to a seasonally adjusted annual rate of 616,000 units.
That’s according to the latest new home sales report, jointly released by the U.S. Census Bureau and the Department of Housing and Urban Development. While that’s still 26.6% below the pace of new-home sales during December 2021, that’s up 2.3% from November’s revised rate. Sales grew in the South and the Midwest, where homes are typically more affordable, but fell in the pricier regions of the Northeast and West.
The three straight monthly sales increases have thus far been modest as affordability and high construction costs remain roadblocks to bigger gains. Indeed, economists polled by Reuters expected more growth in December, projecting a pace of 617,000 units. But with interest rates still on the decline — Freddie Mac reported that 30-year fixed mortgage rates fell to 6.15% last week — there is hope that gains could not only continue, but accelerate. The National Association of Home Builders (NAHB) and Wells Fargo recently reported that their jointly maintained Housing Market Index, which tracks builder confidence in the market, finally saw a modest increase in January, snapping a streak of 12 consecutive monthly drops.
Sales volume in December was boosted by builders enticing buyers into the fray with incentives like discounts and buydowns. Those discounts helped push the median sales price of new houses sold in December to $442,100, down 3.7% month over month. Notably, despite December marking a second straight month of median price decline, new home prices are still up 7.8% year over year, signaling that while optimism is growing, the lack of affordability remains a barrier to home sales.
High construction costs persist as a hurdle keeping prices high.
“Higher builder costs remain a headwind to building more entry-level homes,” noted Odeta Kushi, deputy chief economist at First American Financial Corp. “One year ago, 18% of new-home sales were priced below $300,000. In December 2022, only 11% of new-home sales were priced under $300,000. The pre-pandemic level in December 2019 was 41%.”
New home inventory remains heightened, with the Census estimating 461,000 new homes for sale to close December, a supply of 9.0 months at the current sales rate.