New home sales gaining momentum
The latest U.S. Census numbers on new home sales illustrate an improving market for homebuilders, especially in the South.
- U.S. Census data shows that 683,000 new homes were sold in March, the highest figure in the last year.
- In conjunction with rising sales, the NAHB finds that homebuilder confidence is steadily improving.
- Builders offered concessions, such as mortgage rate buydowns, over the winter to boost sales.
As the country's economy continues to slow, the latest numbers from the U.S. Census Bureau on new home sales offer some encouraging news for the real estate market.
After experiencing a pronounced dip in early 2022, new home sales appear to be showing some upward momentum at a time when many buyers are once again experiencing a competitive market with existing homes. According to the U.S. Census, 683,000 new homes sold in March, while 432,000 were listed for sale. The median sales price for new homes sold in March was just under $450,000.
Given the volatility in the housing market and economy at large, it may be too soon to call it a trend — but March's figure, which is over 680,000 units sold, represents a steady increase since September, when just 550,000 units were sold. The last time the number of new homes sold was higher was exactly a year ago when 707,000 new homes were sold in March 2022.
The region with the most new homes sold in the last year is, perhaps unsurprisingly, the American South, where sales activity and home values have remained strong. In March, the South recorded 386,000 new homes sold, which accounted for over half of all new homes sold in the country. January and February each recorded 408,000 new homes sold in the South, signaling strong sales in what is a slow winter season in other regions.
Builder confidence is bouncing back from post-pandemic lows
The new Census data comes just days after the National Association of Home Builders released its April Housing Market Index (HMI) numbers. The index reflects builder confidence in the housing market, and after declining every month in 2022 to end the year at 31, it has risen steadily since January. The index for April was 45, up one point from March.
While homebuilder confidence appears to be on the rebound, the index is still far from the overwhelming positive sentiment seen during the housing boom during 2021 and early 2022 when it was hovering around the low-mid 80s.
But demand for new homes remains strong, particularly as inventory continues to lag behind in many markets across the country.
"Even as builders continue to deal with stubbornly high construction costs and material supply chain disruptions, they continue to report strong pent-up demand as buyers are waiting for interest rates to drop and turning more to the new home market due to a shortage of existing inventory," NAHB Chairman Alicia Huey, a custom home builder and developer in Birmingham, Alabama, said in March.
Concessions may be helping
When interest rates climbed last summer, sending many buyers to the sidelines, new home builders looked to concessions to entice buyers to sign contracts on under-construction homes.
According to a February report from the NAHB, 57% of builders were using incentives — such as a rate-buydown concession — to boost sales.
One particularly attractive concession in the current high-interest environment is mortgage rate buydowns. In some cases, sellers will pay upfront to purchase discount points to reduce a buyer's mortgage interest rate by 1-2% for a two-year period, consulting firm John Burns Research reported in January. In other cases, a new builder will front the fee to purchase a buydown for the full 30-year term.
Improving builder confidence and concessions are not only helping to get more new homes under contract, but these trends are also lifting the stock prices for some builders. Last week, major builder D.R. Horton posted strong earnings, with a fiscal Q2 profit of $942.2 million, or $2.73 per share. Its current $108 share price is up nearly 50% year-over-year.