New Home Sales, commonly referred to as “new residential sales,” is an economic indicator that tracks the sale of newly constructed residences. It is extensively watched by investors since it is seen as a lagging signal of real estate market demand and, thus, a factor influencing mortgage rates. Household income, unemployment, and interest rates are all variables that influence it.
The United States Census Bureau releases two versions of the New Home Sales metric: a seasonally adjusted figure and an unadjusted one. The adjusted value is shown as a yearly total, whereas the unadjusted figure is presented as a monthly total. These numbers are provided for several areas and the entire nation.
New home sales are completed when a sales contract or deposit is signed or accepted. In any stage of construction, the home might be: not yet started, in the process of being built or fully finished. About 10% of the US housing market is made up of new house sales. Preliminary numbers for new single-family home sales are subject to major changes because they are mostly based on data from construction permits.
New Home Sales Fell 5.6% in October
In a notable downturn, new home sales in the United States experienced a 5.6% decline in October. The seasonally adjusted annual rate fell to 679,000, a drop from the revised September rate of 719,000, according to a joint report from the US Department of Housing and Urban Development and the Census Bureau. Despite this decline, sales still marked a 17.7% increase from the same period the previous year, indicating a resilient market.
The driving force behind this dip is the surge in mortgage rates, reaching the highest levels seen throughout 2023. In August, rates surpassed 7% and climbed as high as 7.79% by the end of October. The Federal Reserve's efforts to tackle inflation played a pivotal role in this upward trajectory. Average weekly rates for a 30-year fixed rate loan from Freddie Mac highlight this surge, although the average rate for that loan dropped to 7.29% just last week.
Median Sales Price: In October 2023, the real estate market witnessed a median sales price of $409,300 for new houses. This key metric reflects the middle value of all prices, providing a benchmark for understanding the pricing landscape in the housing sector.
Average Sales Price: Complementing the median figure, the average sales price for new houses during the same period was $487,000. This average considers the total sales prices divided by the number of houses sold, offering an additional perspective on the market's pricing dynamics.
For Sale Inventory and Months' Supply:
For Sale Inventory: The seasonally-adjusted estimate indicates that 439,000 new houses were available for sale at the end of October 2023. This inventory figure is crucial for assessing the market's capacity to meet the demand for new homes.
Months' Supply: Calculated based on the current sales rate, the 7.8 months' supply signifies the time it would take to sell the entire inventory of new houses available as of October. This metric is indicative of market balance, with a lower supply suggesting potential scarcity and increased competition among buyers.
Impact on Resale Homes and New Construction Alternatives
Existing home sales have been on a downward trend since February, potentially heading towards a 30-year low. However, new construction homes have emerged as a viable alternative for buyers amidst an ongoing inventory and affordability crunch. Homeowners, reluctant to part with their homes due to ultra-low mortgage rates, find new homes as an attractive option.
New home builders, providing more financing options for buyers, can “buy down” mortgage rates to outshine the resale market. This involves subsidizing a portion of the interest rate for a specified period, making the new homes more affordable in the short term.
With [mortgage] interest rates expected to decrease in the coming year, there is a possibility that more resale homes will enter the market. However, significant pent-up demand remains among buyers. The housing market has faced a mismatch between underbuilt homes and household growth for over a decade, driving up prices in many metro areas as households compete for the limited number of available homes.
Looking to 2024
As the prospect of lower interest rates looms in 2024, there is potential for a resurgence in new home sales. Improved conditions might encourage buyers, and the new home market could experience a rebound if interest rates indeed decrease.
Overall, the decline in new home sales in October reflects the impact of soaring mortgage rates in 2023. The resilience of the market, coupled with the potential for lower interest rates in the future, leaves room for optimism. Whether the trend continues or shifts in 2024 remains to be seen, but the dynamics between mortgage rates and housing market trends will undoubtedly play a crucial role.
New Home Sales Trend [Previous Months]
Here's the region-wise tabular data for new home sales from March 2022 to March 2023. The units displayed are in thousands and are the seasonally adjusted annual rate. The data estimates only include new single-family residential structures. Sales of multi-family units are excluded from these statistics.
NORTHEAST: Connecticut, Maine, Massachusetts New Hampshire New Jersey New York Pennsylvania Rhode Island Vermont
MIDWEST: Illinois, Iowa, Indiana, Kansas, Michigan, Minnesota, Missouri, Nebraska North Dakota Wisconsin South Dakota Ohio
SOUTH: West Virginia, Virginia, Texas, Tennessee, South Carolina, Oklahoma, North Carolina, Mississippi, Maryland, Louisiana, Kentucky, Georgia, Florida, Alabama, Delaware, District of Columbia, Arkansas
WEST: Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, Wyoming