New home sales jumped 8%

January 25, 2024

New home sales, which are recorded at the contract signing, jumped 8% in December from November’s upwardly revised sales figures. Sales ended the year 4.4% higher than a year ago. Homes sold for under $400,000 made up 43% of all sales in 2023; in 2022 that share was 38%. Builders have pivoted to building smaller homes and offering more discounts and concessions, such as mortgage rate buydowns, to bring in buyers sidelined by rising mortgage rates.

Sales were strongest in the Northeast (the smallest housing market) and the South (the largest housing market). Only the West saw sales decline during the month.

Newly built homes available for sale fell in December after inventories climbed in both October and November. The months' supply of homes was 8.2 in December, a 3.5% drop from a year ago. Builders’ offers to buyers helped clear inventories at a time when the resale market supply remains extremely tight.

Mortgage rates peaked in October and fell below the 7% threshold for the first time since August in December. That fueled mortgage applications at the end of the year, which rose to the highest level since July. Applications to purchase a home were 12% below year-ago levels to close out 2023, but momentum into 2024 points to stronger activity ahead. If mortgage rates remain below 7% and fall further, sidelined first-time buyers and locked-in owners looking to trade-up will fuel demand this year.

Separately, existing home sales, which are recorded at the contract closing and reflect activity from a few months prior, fell 1% in December and ended 2023 at the lowest level of sales since 1995. Significant supply shortages in the resale market drove the median price of homes to hit a record high in 2023 of $389,800. Peak mortgage rates in October added insult to injury.

Homes available for sale at the end of 2023 fell to one million units, reflecting a 3.2 months’ supply at the current sales pace. A six months’ supply is considered a balanced market. Homeowners, who make up about two-thirds of all households, have benefitted from locking in low mortgage rates or paying off their homes outright over the past few years. In a high interest rate environment, many have been locked into place, unable to move or trade up in fear of losing their rates. If mortgage rates fall below 6% in 2024, more owners will feel comfortable listing their homes for sale, alleviating some of the shortages, but not enough to close the supply gap.