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New-home sales surged last month, as buyers increasingly turned to fresh construction in a housing market plagued by few homes for sale.
Sales of new single-family houses jumped 8.8% in March from the prior month, to a seasonally adjusted annual rate of 693,000, the U.S. Census Bureau and Department of Housing and Urban Development jointly reported on Tuesday. March sales were up 8.3% from one year ago and were at their highest levels since last September.
The median sales price of new homes was $430,700 in March. That was good news for buyers as the price was down 1.8% from one year ago. This is a result of homebuilders increasingly pivoting to smaller and more affordable homes to appeal to buyers pinched by high mortgage rates.
“The willingness of the major homebuilders to utilize incentives such as price reductions, mortgage rate buy-downs, and paying buyers’ closings costs continues to support a healthy pace of new-home sales,” said Gregg Logan, managing director of RCLCO Real Estate Consulting, in a note on the new report.
The surge in new-home sales comes after the National Association of Realtors® last week reported that sales of previously owned homes slumped in March. Total existing-home sales dropped 4.3% from February, to a seasonally adjusted annual rate of 4.19 million in March.
Northeast leads monthly surge in new-home sales
The number of new homes sold in the Northeast jumped 27.8% from February to March on a seasonally adjusted basis. That was the largest increase in the nation. However, sales dropped 13.2% compared with March of the previous year.
Monthly new-homes sales rose 8.6% in the West, 7.7% in the South, and 5.3% in the Midwest.
Rising mortgage rates didn’t appear to slow down new-home sales like they did for sales in the existing-home market. The number of sales in the resale market dropped 3.7% year over year in March, according to NAR.
Mortgage rates averaged 6.82% in March, according to Freddie Mac. But they rose to 7.1% for 30-year fixed loans in the week ending April 18. This was the first time they topped 7% so far this year, an increase that is expected to squeeze the budgets of prospective homebuyers.
“Although consumer demand has been somewhat dampened due to higher interest rates, builders continue to supply new homes to the market to lift inventory to make up for the low resale supply,” Carl Harris, chairman of the National Association of Home Builders, said in a statement. “Rates moving above 7% however, will move some home buyers to the sidelines as the spring progresses.”
New-home prices remain robust despite affordability push
To lure homebuyers discouraged by high mortgage rates, homebuilders have pivoted to more affordable floor plans and offered a range of incentives, including mortgage rate subsidies.
“Although home prices and mortgage rates remain high, prices have been rising more slowly, and homebuilders have been introducing a broader mix of smaller homes in order to bring prices in reach of more home buyers,” said Logan.
Still, new-home prices remain well above those seen before the COVID-19 pandemic, with March’s median sales price up 31% from four years ago. The March price was also a 6% gain from the three-year low reached in February.
March’s new-home median sales price of $430,700 is also nearly 10% higher than the existing-home price of $393,500 that NAR reported for March, noted Bright MLS Chief Economist Lisa Sturtevant.
“Homebuilder confidence continues to be high despite elevated mortgage rates,” she said in a statement. “The new home market has been an outsized share of the housing inventory, so homebuilders have been able to attract prospective homebuyers who are seeing very limited supply in the existing home market.”
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