According to a recent report from the U.S. Census Bureau and the Department of Housing, the median price for a newly built home fell by 7.6% compared to the previous year, reaching $400,500 in February. This marks the lowest recorded median price since that month in 2021. Concurrently, new home sales experienced a marginal decrease to a seasonally adjusted rate of 662,000 units, which, despite being a 0.3% decline from January, showed a 5.9% increase compared to February of the prior year.
Hannah Jones, a senior economic research analyst at Realtor.com, noted that new construction remained an appealing choice for buyers due to a limited supply of existing homes. However, the surge in mortgage rates towards 7% in February led some potential buyers to postpone their purchasing decisions. This is evidenced by the average 30-year fixed mortgage rate, which rose from 6.63% at the end of January to 6.94% by the end of February, as per Freddie Mac.Despite the temporary slowdown, Jones highlighted that new-home sales are still exceeding pre-pandemic levels, securing a more significant market share.
Robert Dietz, Chief Economist for the National Association of Home Builders, observed that the slight increase in mortgage rates affected the pace of new-home sales in February, with about a quarter of builders reporting price reductions for March.Dietz linked the overall price decrease in February to builders’ strategic pricing cuts and a shift towards constructing more modest-sized homes to address affordability issues.
Lisa Sturtevant, Chief Economist at Bright MLS, which serves the mid-Atlantic region, mentioned that homebuilders have adapted their offerings in response to the rate hikes. They have introduced incentives such as paying down points on buyers’ mortgages or providing financing at competitive rates.Moreover, Sturtevant noted that builders have been introducing smaller and more affordable homes to the market to cater to the changing demands and financial considerations of homebuyers in the current economic climate.
In February, the sale of newly built homes surged significantly in various regions across the country, with the Northeast witnessing the most substantial increase. The government’s seasonally adjusted data revealed a 60.9% rise in new-home sales in the Northeast compared to the same period last year. However, there was a monthly decline of 31.5% from January to February.
The West also saw a substantial annual growth in new-construction sales, with a 43.4% increase in February, and a modest 2.3% increase from January.
The Midwest reported a 15.3% year-over-year rise in new-home sales, though there was a slight 2.4% decrease in sales from January.
Contrastingly, the South, known for its robust construction activity, was the only region to observe a decrease in new-home sales in February, with a 10% annual drop. However, there was a 3.7% increase in sales from the previous month.
Elevated mortgage rates have had a dampening effect on the sales of pre-owned homes, which has indirectly benefited homebuilders. Homeowners with lower mortgage rates are less inclined to sell, resulting in a reduced inventory of existing homes on the market.
Sturtevant noted that new construction now accounts for a significant portion of the housing stock, as existing homeowners with favorable mortgage rates are holding off on selling. This trend has led to an increased interest in new homes among potential buyers.
In response to the growing demand, homebuilders have ramped up construction, with new home starts increasing by 10.7% in February, reaching an annual rate of 1.52 million units, as per the government’s monthly report on new residential construction.
Jones reported that new construction now represents about a third of all homes available for sale, a notable shift from pre-pandemic levels. Builders are supplying homes in a market that has seen a shortage of inventory.
Additionally, building permits, an indicator of upcoming construction activity, increased by 1.9% in February, also reaching an annual rate of 1.52 million units, the highest since August, according to the report.
In the meantime, existing-home sales experienced a significant boost in February, with a 9.5% increase from the previous month—the largest monthly surge in a year, as reported by the National Association of Realtors.
Jones commented that both buyers and sellers are preparing for the spring season, with the optimal time for selling fast approaching. However, the intensity of the spring market will likely be influenced by the direction of mortgage rates in the upcoming months.
