Despite a minor January uptick, U.S. new single-family home sales rose, hindered by a Southern region decline. Ongoing demand stems from existing home shortages. Commerce Department data showed a 1.5% increase to 661,000 units, adjusted from December's 651,000. Economists projected a higher rise to 680,000, but freezing weather may have deterred buyers. While Northeast, West, and Midwest sales surged, Southern sales fell. Future sales indicators were positive, but rising mortgage rates could slow momentum. Expectations of declining rates suggest growth potential, especially with homeowners securing low rates. Median home price dropped to $420,700, with fewer price reductions. Inventory increased slightly to 456,000 homes, sustaining an 8.3-month supply.
Despite a smaller-than-anticipated increase in January, new single-family home sales in the U.S. saw a rise, primarily restrained by a significant drop in the Southern region. However, the demand for new construction persists due to a continual shortage of existing homes for sale. According to the Commerce Department's Census Bureau, new home sales climbed by 1.5% to reach a seasonally adjusted annual rate of 661,000 units last month. December's sales pace was adjusted downward to 651,000 units from the initially reported 664,000 units.
According to economists surveyed by Reuters, new home sales, constituting approximately 14.2% of total U.S. home sales, were anticipated to increase to a rate of 680,000 units. The freezing temperatures across many parts of the country in January may have deterred some potential buyers, impacting retail sales, home construction, and factory output.
New home sales, recorded upon contract signing, serve as a predictive measure for the housing market, although they can exhibit volatility from month to month. In January, sales increased by 1.8% compared to the previous year. On a monthly basis, sales experienced significant growth, with a 72.0% surge in the Northeast, a 38.7% increase in the West, and a 7.7% rise in the Midwest. However, sales in the heavily populated South plummeted by 15.6%, marking the lowest level since September 2022.
Last week, a survey conducted by the National Homebuilders Association indicated that indicators of sales for the upcoming six months and potential buyers reached their highest levels in February. However, home sales might sustain a moderate pace in the upcoming months due to the resurgence of mortgage rates, prompted by financial markets adjusting their expectations for the first Federal Reserve interest rate cut to June from May.
However, economists maintain the anticipation of mortgage rates declining throughout this year. This, coupled with the existing shortage of homes as numerous homeowners secure mortgage rates below 4%, implies that the new housing market has additional potential for growth.
Data from mortgage finance agency Freddie Mac revealed that the average rate on the widely-used 30-year fixed-rate mortgage climbed to 6.90% last week from 6.77% in the previous week. It has risen from 6.62% at the start of the year but remains lower than the late October peak of 7.79%, the highest level since 2000.
In January, the median price of new houses was $420,700, marking a 2.6% decrease compared to the previous year. However, the rate of decline has slowed as builders scale back on incentives, including price reductions. According to the NAHB survey, the proportion of builders offering price reductions decreased to 25% in February from 31% in January and 36% in the previous two months. The majority of homes sold last month fell within the $300,000-$749,000 price bracket.
By the end of January, there were 456,000 new homes available on the market, a slight increase from 452,000 in December. Based on January's sales rate, it would take 8.3 months to deplete the existing inventory, unchanged from December. Homes under construction represented 59.2% of the inventory, while those yet to be built comprised 23.2% of the supply, and completed houses made up 17.5%.
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