New Home Sales Flat in February Due to Slight Rise in Mortgage Rates
A slight increase in mortgage rates in February led to a stagnant reading for new home sales.
Sales of newly built, single-family homes in February edged 0.3% lower to a seasonally adjusted annual rate of 662,000, according to data released by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. Despite the monthly dip, the pace of new home sales in February is up 5.9% from the same period last year.
“While new home sales remained flat in February, our latest home builder surveys show increased levels of confidence driven by the ongoing lean levels of existing home inventory,” said Carl Harris, chairman of the National Association of Home Builders (NAHB) and a custom home builder from Wichita, Kansas. “As interest rates subside over the course of 2024, additional home buyers will be priced into the market and new construction will be needed to meet this demand.”
NAHB Chief Economist Robert Dietz added, “A slight uptick in mortgage rates held back the pace of new home sales in February. Our latest builder surveys show that roughly one-quarter of builders reported cutting home prices in March. The price cuts, in combination with building slightly smaller homes, can be seen in today’s data that show a 7.6% year-over-year decline for median new home prices.”
Mortgage rates averaged 6.78% in February, up from 6.64% in January, according to Freddie Mac.
A new home sale is recorded when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction, or completed. The February reading of 662,000 units represents the number of homes that would sell if this pace continued for the next 12 months, adjusted for seasonal effects.
The inventory of new single-family homes in February remained elevated at 463,000 units, up 1.3% from January. This represents an 8.4 months’ supply at the current building pace. A 6 months’ supply is typically considered balanced. However, with only a 2.9 months’ supply of existing homes for sale, new home inventory can remain above this balanced measure.
The median new home sale price in February was $400,500, down 3.5% from January and 7.6% lower compared to a year ago.
Regionally, on a year-to-date basis, new home sales have seen significant increases in the Northeast (up 47.0%), the Midwest (up 29.7%), and the West (up 41.0%). In contrast, new home sales in the South have decreased by 13.4%.
As the housing market continues to adapt to fluctuating interest rates and inventory levels, builders and buyers alike are navigating a complex landscape. However, with the potential for interest rates to decrease over the course of 2024, there is optimism that more buyers will enter the market, necessitating further new home construction to meet demand.
