A row of homes under construction.
Illustration by Lanette Behiry/Real Estate News; Shutterstock

A strong start to the year for new home sales 

Sales of new homes rose in January and inventory remained robust. Median prices were up even as some builders continue to offer buyer incentives.

February 26, 2024
3 minutes

Key points:

  • The U.S. Census reported a seasonally adjusted annual rate of 661,000 new single-family home sales in January.
  • here were 456,000 homes for sale at the end of the month, equating to roughly 8.3 months of supply.
  • Homebuilders are feeling more confident but still offering incentives like mortgage rate buydowns to help close deals.

According to the latest figures released today by the U.S. Census Bureau, January logged a seasonally adjusted annual rate of 661,000 new single-family home sales. This represents an increase of 1.5% from the previous month and 1.8% from the same period a year prior, but a decline from 2023's high of 728,000 new home sales in July.  

The median sale price of new homes that closed in January was $420,700, which is slightly higher than the $413,100 median price reported for December, but lower than November's median of $428,300.

At the end of January, there were approximately 456,000 new homes for sale, which translates to roughly 8.3 months of supply at the current sales rate. This monthly inventory figure remained unchanged from December. 

Inventory for new homes remains strong compared to existing homes, which ended January with only around three months of supply.

"The new home market has been doing particularly well over the past couple of years because the inventory of existing homes for sale has been so low," said Dr. Lisa Sturtevant, chief economist for Bright MLS. "Last year, new homes accounted for about 30% of the total available homes for sale in the U.S."

Sales and builder confidence up, home sizes down

The slight bump in new home sales in January follows improving homebuilder confidence. Builder sentiment had declined significantly in the fall, coinciding with peak mortgage rates that worsened affordability for many buyers, before improving two months in a row to hit the highest level since late last summer.

But homebuilders are still offering attractive incentives to buyers, particularly mortgage rate buydowns which help reduce the monthly mortgage payment and overall interest paid during the course of the loan term for homebuyers.

"In the new home market, builders have often been able to offer to buy down a buyer's mortgage rates, subsidizing the mortgage payment and making it easier for them to get into a home," Sturtevant said of the trend. "Record profits in recent years have made it possible for builders to offer these concessions. But builders are also cutting prices and building smaller homes."

This "shrink-flation" in new home footprints means that differences in new and existing home sales don't necessarily reflect an apples-to-apples comparison, ING Chief International Economist James Knightley told Real Estate News.

"You're not really comparing the same thing because a new three-bedroom townhouse may be very different from an existing three-bedroom townhouse, which historically was much bigger," he said.

Mortgage rates key to home sale trends

The combination of builder incentives and mortgage rates under 7% have likely contributed to the increase in new home sales — but buyers and homebuilders who are counting on stability in the mortgage market could be in for an unwelcome surprise, Knightley said, hinting that there could be more economic turbulence in the case of a hard reversal from the Fed.

"I guess the key concern for us right now is that the prospect of interest rate cuts from the Federal Reserve has really been scaled back since the start of the year," he said. 

"If the economy stays hot and if inflation stays stickier, then there is that risk that mortgage rates don't go down. In fact, they could go even higher and that could translate into more pain for the property market."

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