New home sales in January were at a seasonally adjusted annual rate of 670,000, an increase of 7.2% compared with December but down 19.4% compared with January 2022, according to estimates from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.
Lower mortgage rates helped boost new home sales in January, but the trend is expected to reverse as rates begin to rise again.
The median sales price of a new home sold in January was $427,500. The average sales price was $474,400.
As of the end of the month, there were about 439,000 new homes available on the market – about a 7.9-month supply at the current sales rate.
So why are new home sales rising while existing-home sales continue to fall?
“Existing homeowners are sitting on cheap mortgages and are reluctant to cut prices,” explains Odessa Kushi, deputy chief economist for First American, in a statement.
Meanwhile, builders are “using incentives to bolster sales, such as rate buydowns, paying points and offering price reductions, but also offering upgrades on appliances and other quality features, essentially giving the buyer more home for the same amount of money that they had originally contracted for,” Kushi says.
“Not to mention that the inventory of existing homes for sale remains very low, and a new home, at the right price, is a pretty good substitute,” she adds.
“But only 68,000 of the total new-home inventory is completed and ready to occupy,” Kushi says. “That’s about 15.5 percent of the new-home inventory. This count has been increasing in recent months and is up 112 percent year-over-year. Homes under construction account for the bulk of total new home inventory, around 64 percent.”
Kushi notes that higher builder costs remain a headwind to building more entry-level homes.
“In January, only 14 percent of new home sales were priced less than $300,000,” she says. “This number is slightly higher compared to one year ago – when 11 percent of new homes were priced less than $300,000 – but remains well below the pre-pandemic number in January 2019 of 48 percent.”
“Even though new home sales edged higher in January, the recent uptick in mortgage rates would imply continued weakness in the coming months,” says Danushka Nanayakkara-Skillington, assistant vice president for forecasting and analysis for the National Association of Home Builders. “In terms of affordability, the median price is down for the third straight month and is down compared to a year ago.”