New home sales plummeted 10.5% in January compared with December to reach a seasonally adjusted annual rate of 657,000, according to the U.S. Census Bureau.
Year-over-year, new home sales were down 1.1%.
The median sales price of a new home sold in January was $446,300. The average sales price was $510,000.
As of the end of the month, there were about 495,000 new homes available for sale in the U.S, about a nine month supply at the current sales rate.
The drop in new home sales coincides with growing builder pessimism stemming from high mortgage rates and the looming possibility of tariffs on imported construction materials that will drive up costs.
“New-home sales started the year more like a lamb than a lion, declining 10.5 percent on a monthly basis to 657,000, well below the consensus estimate of 680,000,” says Odeta Kushi, deputy chief economist at First American, in a statement. “The only region to register a month-over-month increase in new-home sales was the West.”
“The median sales price increased in January to the highest level since 2022, as more high-end homes were sold,” Kushi says. “The share of new homes sold below $300,000 dipped slightly from 19 percent last month to 17 percent this month. The good news for potential first-time home buyers is the share of new homes sold below $300,000 remains higher than last year’s level of 14 percent.”
The forecast for new home sales in the months to come is less than optimistic.
“Builders face both headwinds and tailwinds as they head into 2025,” Kushi says. “Builder sentiment fell in February to its lowest level since September. Optimism about single-family sales expectations for the next six months plummeted by 13 points, marking the largest one-month decline since the early months of the COVID-19 pandemic.”
“Builders’ growing pessimism is due to several factors,” Kushi says. “While builders benefit from a chronic housing shortage made worse by the ‘seller’s strike’ driven by higher mortgage rates, they still face lingering supply-side and affordability challenges. Additionally, existing-home inventory has picked up, and as it expands, builders’ relative supply advantage wanes. The share of total inventory made up by new homes remains elevated compared to historic norms, but has leveled out in recent months.”
“On the positive side, the new-home market has become less sensitive to changes in interest rates thanks to homebuilders’ ability to offer rate buydowns and other pricing incentives,” Kushi adds. “However, this is threatened by elevated financing costs. Incentive use may be declining as a sales strategy as elevated interest rates reduce the pool of eligible home buyers.”
Photo: Alexander Andrews