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 Surge 12.3% in Sept 2023
In September, new home sales experienced a remarkable surge of 12.3%, defying the challenges posed by soaring mortgage rates. This surge can be attributed to a shortage of existing homes available for sale. The National Association of Home Builders (NAHB) played a significant role in analyzing and understanding this surge.
The Impressive Statistics
The data revealed the following striking statistics:
- Month-to-month new home sales increased by 12.3%.
- Year-to-year comparisons showed an impressive 33.9% rise in new home sales.
- September recorded a seasonally adjusted annual rate of 759,000 for newly built, single-family homes.
The Impact of Existing Inventory Shortage
The surge in new home sales was primarily a response to the scarcity of options in the existing home market. With limited choices, homebuyers turned to new construction to fulfill their homeownership dreams.
While the surge in new home sales is encouraging, it may not be sustainable due to the looming challenges. Mortgage rates have reached a 23-year high at nearly 8%, posing a potential threat to the housing market. These higher rates not only increase the cost of housing for buyers but also impact builders due to elevated financing costs for construction loans.
A new home sale is officially recorded when a sales contract is signed or a deposit is accepted. It's important to note that the sale can encompass homes in various stages of construction, including those not yet started, under construction, or completed. The data for September, after accounting for seasonal fluctuations, indicates a rate of 759,000 homes sold annually if this pace is maintained.
To adapt to the high-interest rate environment, builders are shifting their focus to constructing smaller homes. This strategy has led to a decline in the median new home price. In September, the median new home sale price was $418,800, reflecting a 3.3% drop from the previous month and a 12.3% decrease year-to-year.
Inventory and Regional Insights
New single-family home inventory in September stood at 435,000, marking a 5.4% year-to-year decline. This inventory represents a 6.9-months’ supply at the current building pace, which is considered balanced.
Completed, ready-to-occupy inventory has seen a significant 39.6% increase compared to the previous year, but it still constitutes just 17% of the total new home inventory.
Regional New Home Sales Overview
On a year-to-date basis, new home sales have shown growth across all four regions of the country:
- 12.8% increase in the Northeast
- 0.5% rise in the Midwest
- 5.4% growth in the South
- 2.5% upswing in the West
The surge in new home sales in September is a testament to the resilience of the housing market. However, the looming challenge of high mortgage rates poses a potential threat to this growth. As builders adapt to this environment by focusing on smaller, more affordable homes, it will be interesting to see how the market evolves in the coming months. Affordability conditions and interest rates will play a pivotal role in shaping the future of the real estate industry.
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