New home sales turn higher in January

February 26, 2024

New home sales, which are recorded at the contract signing and better reflect recent activity in the housing market, grew 1.5% in January after December sales were revised lower. Sales remained 1.8% higher than a year ago. Surges in sales in the Northeast and West offset slumping sales in the South.

The inventory of new homes available for sale, measured in months’ supply at the current sales pace, remained at 8.3 months in January; a six months’ supply is considered a balanced market. The inventory is 2.5% higher than a year ago. Builders are more responsive than sellers to changing market conditions, offering mortgage rate buydowns and other incentives to help bring in buyers. The median price of a new home was $420,7000 in January, about $7000 lower than 2023 levels and $37,000 lower than 2022 levels.

Mortgage rates hit their lowest level in six months in late December and early January. This provided some relief for sidelined buyers to reenter the housing market. The relief could be short-lived as rates flirted with 7% in early February, according to Freddie Mac. The good news is that almost two-thirds of builders are offering some form of sales incentives, which include mortgage rate buydowns. This is one of the reasons behind the divergence in sales activity between new and existing homes.

Existing home sales, which are recorded at the contract closing and reflect activity from a few months prior, rose 3.1% in January after falling for much of 2023. All regions except the Northeast saw sales increase. Sales remain 1.7% lower than a year ago as supply shortages remain acute. Current inventory levels are at a three-months’ supply, which translates to about a million units available for sale.