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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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Home sales slipped in March as mortgage rates rose.

Total existing-home sales dropped 4.3% from February, to a seasonally adjusted annual rate of 4.19 million in March, the National Association of Realtors® reported on Thursday. The March sales figure represented a 3.7% drop from one year ago. (Existing homes exclude new construction.)

A pullback in sales had been widely expected after mortgage rates ticked up, discouraging buyers.

Prices also kept climbing. The median price for existing homes was $393,500 in March, up 4.8% from the previous year to the highest it’s ever been for that month. Prices rose in all U.S. regions, climbing 9.9% in the Northeast, 7.5% in the Midwest, 6.7% in the West, and 3.4% in the South.

But in a silver lining for prospective homeowners, the number of existing homes for sale jumped 4.7% from February to 1.11 million units at the end of March, according to the report. The number of existing homes on the market was up 14.4% from a year ago.

Although high prices and rising interest rates remain challenges for homebuyers, any boost to housing inventory could provide some relief in a tight market where limited supply has been a persistent issue.

“More inventory is always welcomed in the current environment,” said NAR Chief Economist Lawrence Yun in a statement. “There are nearly six million more jobs now compared to pre-COVID highs, which suggests more aspiring home buyers exist in the market.”

It is still a “great time to list” as home prices continue to rise overall and sellers of midpriced properties still frequently receive multiple offers, Yun said.

First-time buyers made gains in March

First-time buyers were responsible for 32% of sales in March, up from 26% in February and 28% from a year ago, according to the NAR report.

The resurgence of first-time buyers could be due to a recent influx of lower-priced homes for sale, says Realtor.com® Chief Economist Danielle Hale.

“Despite climbing sales and list prices, Realtor.com data show that sellers are approaching the housing market with more realistic expectations this spring even as we approach the week that Realtor.com has identified as the best time to sell a home,” says Hale.

Cash sales also declined last month, perhaps giving first-time buyers a better shot at seeing their offer accepted. All-cash sales accounted for 28% of transactions in March, down from 33% in February. But these sales were up from 27% one year ago.

Investors, who frequently pay all-cash, made up a smaller share of buyers last month. Individual investors or second-home buyers purchased 15% of homes in March. That was down from 21% in February and 17% in March 2023.

Mortgage rates poised to remain higher for longer

Thomas Ryan, a property economist with Capital Economics, says that March’s sales slump “didn’t come as a huge surprise” given that mortgage applications and pending home sales both fell in the early months of the year due to rising mortgage rates.

“The fall in existing home sales in March was triggered by mortgage rates climbing,” Ryan said in a note.

Mortgage rates averaged 6.82% in March for 30-year fixed loans, according to Freddie Mac.

They rose to 7.1% for 30-year fixed loans in the week ending April 18 after hotter-than-expected inflation data for March tempered expectations of a Federal Reserve rate cut anytime soon.

“Prospective home buyers face a challenging—and confusing—housing market. Mortgage rates, which had been expected to fall in 2024, have inched up close to 7% and seem poised to remain higher for longer,” said Bright MLS Chief Economist Lisa Sturtevant in a market commentary. “Inventory has started to increase, but the market is still competitive with sellers still getting multiple offers.”

Sturtevant projected that “home sales activity could remain a bit downbeat this spring.” However, she anticipates sales will likely pick up over the rest of the year.

“It is definitely a strange spring housing market,” she said. “It is a new normal, where market conditions are shifting and some rules are changing.”

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Construction on new homes declined unexpectedly last month, in a troubling sign for homebuyers already grappling with a dearth of homes for sale.

Housing starts dropped 14.7% in March from February, to a seasonally adjusted annual rate of 1.321 million, according to data released on Tuesday by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. They were down 4.3% year-over-year.

It marked the largest monthly percentage decline since April 2020, during the onset of the pandemic. The March figures were also the lowest total seen since August of last year.

The decline in new construction, which was larger than economists had forecast, could signal trouble for homebuyers. With the number of homes on the resale market remaining tight, newly built homes have provided a crucial boost of housing for buyers.

“After an impressive February, this month’s new residential construction data falls more in line with previous months’ trends,”  Realtor.com® Senior Economic Data Analyst Hannah Jones said in a statement. “More for-sale and for-rent inventory will be key in easing rent and price growth in today’s under-supplied market, especially as existing homeowners find today’s market relatively inhospitable for a home sale due to high prices and mortgage rates.”

Within total housing starts, single-family starts fell 12.4% from February. However, starts were up 21.2% year-over-year in March.

Single-family permits, a sign of future construction, also dropped 5.7% from February. That was the first monthly decline in nearly two years. They were up 17.4% year-over-year.

Multi-family starts also dropped 20.8% in March from the prior month. That continued a downward trend for multi-family construction over the past year. Cooling rents and the sheer number of other projects that have been completed recently or are still in the pipeline have dented developer appetite for new condo, co-op, and rental projects.

“Looking ahead, we still think single-family starts stand to benefit from the lack of second-hand homes on the market, shifting demand to newbuilds,” said Capital Economics Property Economist Thomas Ryan in a note. “But that strength will be offset by weakness in multi-family starts, which we expect will remain around current levels, leaving total housing starts little higher than they currently are by the end of this year.”

Housing starts fall in every region but the West

Monthly housing starts fell in March in the Northeast, Midwest and South, but climbed 7.1% in the West and were up 48.1% year-over-year.

“Housing starts surged in the West in March, posting strong gains after an anemic 2023. This increase in new construction in the western region is a good sign for home shoppers there who have faced high prices and limited inventory,” said Bright MLS Chief Economist Lisa Sturtevant in a statement.

On a monthly basis, total housing starts declined 36% in the Northeast, 23% in the Midwest, and 17.8% in the South last month. Annually, starts were down in these regions, except for the Midwest where they were up 18% year-over-year.

Builders blame higher interest rates, inflation

Homebuilders say they face financing constraints on construction projects, as higher interest rates increase the cost of borrowing for both builders and buyers.

“Builders are grappling on several fronts as the inflation fight continues,” said Carl Harris, chairman of the National Association of Home Builders (NAHB) and a custom home builder from Wichita, KS.

“Higher interest rates are increasing the cost of housing for prospective home buyers and raising the development and construction cost for builders of homes and apartments,” he added.

Mortgage rates are climbing back towards 7% after March’s inflation rate came in hotter than expected at 3.5%, lowering expectations that the U.S. Federal Reserve will lower its interest rates anytime soon. Last week, the average rate on a 30-year fixed mortgage was 6.88%, according to Freddie Mac.

“Single-family starts were down in March as interest rates increased and multifamily production fell as builders faced tighter financing conditions,” said Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis. “And with single-family permits also down in March, single-family production will likely decline again in April.”

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The number of homes going under contract was a mixed bag across the country, with monthly gains in the Midwest and South and a slump in the higher-priced Northeast and West regions.

Nationwide, pending home sales rose a modest 1.6% in February from the prior month, according to data from the National Association of Realtors® Pending Home Sales Index released on Thursday. Annually, pending home sales transactions were down 7%.

There were more signed contracts in more affordable parts of the country. In the Midwest, where home prices are generally lower, pending sales surged 10.6% from January to February. Signings also ticked up 1.1% in the South on a monthly basis.

In the Northeast, pending transactions slumped 0.3% from January, while the pricey West saw a plunge of 6.5%. All of the regions experienced year-over-year declines.

“The high-cost regions in the Northeast and West experienced pullbacks due to affordability challenges,” NAR Chief Economist Lawrence Yun said in a statement. “Home prices rising faster than income growth is not healthy and adds challenges for first-time buyers.”

However, Yun projected that a recent surge in homebuilding will boost the number of homes on the market. This should give prospective buyers more options to choose from.

“Additionally, many sellers, who delayed listing in the past two years, will begin to put their homes on the market to move to a different home that better fits their new life circumstances–such as changes in family composition, jobs, commuting patterns and retirees wanting to be closer to their grandkids,” he said.

High mortgage rates and low affordability weigh on buyers

Mortgage rates jumped to an average 6.94% in the last week of February, up from 6.63% a month earlier, according to Freddie Mac. Meanwhile, home prices remain at record highs, driving some potential buyers to the sidelines.

“Pending home sales remained low in February as climbing mortgage rates drove many would-be buyers to the sidelines,” Hannah Jones, senior economic analyst for Realtor.com®, said in a statement.

“Both new home sales and pending home sales leveled off compared to December’s surge as mortgage rates picked up steam. However, the number of homes listed for $200,000 to $350,000 increased by 20.6% annually in February 2024, offering options for buyers hoping to secure a home despite climbing mortgage rates,” she added.

On an annual basis, pending home sales dropped in every region last month, according to NAR. Contract signings dropped 9% from a year ago in the Northeast, 8.5% in the South, 6.5% in the West, and 2.5% in the Midwest.”

“After three years of unusual spring housing markets, we should not expect this one to necessarily feel ‘normal,’” Bright MLS Chief Economist Lisa Sturtevant said in a statement. The MLS covers the Mid-Atlantic region. “Home buyers have been resilient in the face of elevated mortgage rates and low inventory, but household savings rates are down and household debt is rising, making some individuals and families feel more cautious.”

New home construction could help boost supply

Many homebuilders are pivoting to smaller, more affordable homes and even offering price cuts to lure buyers discouraged by high mortgage rates.

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Sturtevant noted that new listing activity is on the rise and new home construction also remains strong, adding to supply of homes for sale.

New home construction starts jumped 10.7% in February from the prior month, according to the government’s monthly new residential construction report. Building permits, a sign of future construction, rose 1.9% in February,  reaching an annual pace of 1.52 million—the highest level seen since August, according to that report.

Meanwhile, many homebuilders are pivoting to smaller, more affordable homes and even offering price cuts to lure buyers discouraged by high mortgage rates.

The median sales price of a newly constructed home dropped 7.6% year over year in February, to $400,500, according to a report on Monday from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. This was the lowest median price since June 2021.

“Overall, active inventory grew 14.8% annually in February and prices remained relatively stable compared with the previous year as more affordable inventory made its way into the market,” said Jones. “Though the market saw nearly 40% fewer homes for sale in February compared with pre-pandemic, home shoppers enjoyed more homes for sale and more affordable options than one year prior, which could boost buyer activity despite still-elevated mortgage rates.”

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Home prices reached a new record high in early 2024.

Nationwide, home prices rose 6% in January from a year earlier, according to the latest S&P CoreLogic Case-Shiller Home Price Index released on Tuesday. That was the biggest year-over-year increase since November 2022.

“U.S. home prices continued their drive higher,” Brian D. Luke, head of commodities, real and digital assets at S&P Dow Jones Indices, said in a statement. “Homeowners most likely saw healthy gains in the last year, no matter what city you were in, or if it was in an expensive or inexpensive neighborhood.”

Prices jumped 7.4% year over year in January in the 10 largest metros tracked by the index. They were up 6.6% in the 20 largest metros. On a seasonally adjusted basis, home prices continued to break through the all-time highs reached last year.

“Moving into the spring, buyers and sellers alike are looking for ways to seize any opportunity today’s challenging market offers,” said Realtor.com® senior economic research analyst Hannah Jones in a statement. “Buyers face still-high prices and mortgage rates, as well as historically low inventory levels, but for-sale options are improving and are expected to continue to climb seasonally through the spring and summer.”

Despite the healthy annual gains in home prices, the monthly gains were more modest. That could signal a looming moderation in price growth if the trend continues.

From December to January, price growth was just 0.4% nationally, 0.1% for the 10-city index, and 0.2% for the 20-city index, according to the report.

“If the trend continues we could see prices start to fall, though unfortunately we’re a year away from seeing home prices drop nationwide, in the best case,” Robert Frick, corporate economist with Navy Federal Credit Union, said in a statement.

“Low home inventories coupled with pent-up demand could push up prices, so lower home prices are far from certain,” Frick added.

Where are home prices rising the fastest?

San Diego, CA

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Among the 20 largest metros tracked by Case-Shiller, San Diego again reported the highest year-over-year home price gain. It notched an 11.2% increase in January.

Los Angeles followed with an increase of 8.6%. Detroit came in third with a gain of 8.2%, trailed by Charlotte, NC, at 8.1%, and Chicago, at 8%.

Sitting at the bottom of the annual growth list is Portland, OR. However, Portland still eked out an annual price increase of 0.9%.

“While there is a large disparity between leaders such as San Diego versus laggards such as with Portland, the broad market performance is tightly bunched up,” Luke said,

Higher mortgage rates are weighing on homebuyers

The slowing monthly price gains may reflect the impact of higher mortgage rates, which have weighed on the purchasing power of prospective buyers. Faced with higher mortgage payments, some buyers have sought out smaller and more affordable homes.

Rates for a 30-year fixed mortgage averaged 6.64% in January, according to Freddie Mac. That was down from the recent peak monthly average of 7.62% seen in October, but still more than double the rates seen before the Federal Reserve began its rate hikes two years ago.

“On a monthly basis, home prices continue to struggle in the face of elevated borrowing costs,” Luke said. “Seventeen markets dropped over the last month, while Minneapolis has posted a 2.4% decline over the prior three months.”

Only Southern California and Washington, DC, have stood up to the rising wave of mortgage rates and delivered positive monthly returns to start the year, Luke noted.

“While elevated mortgage rates continued to freeze housing market activity over the winter, an unthawing is in sight, with improvements in for-sale inventory offering more opportunities for potential buyers across the country,” says Selma Hepp, chief economist at CoreLogic. “More inventory is a welcome development and suggests that some normalization in the U.S. housing market lies ahead.”

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The price of newly built homes plunged last month as homebuilders sought ways to attract buyers who are feeling the pinch of higher mortgage rates.

The median sales price of a newly constructed home dropped 7.6% year over year, to $400,500 in February, according to a report on Monday from the U.S. Census Bureau and the U.S. Department of Housing. This was the lowest median price since June 2021.

The number of sales of new homes also dipped slightly in February to a seasonally adjusted annual rate of 662,000. This was down 0.3% from January, but up 5.9% from the same month last year.

“New construction continued to be a popular option for buyers amid low existing-home inventory,” says Realtor.com senior economic research analyst Hannah Jones. “However, as mortgage rates climbed back toward 7% in February, some buyers decided to put a hold on their homebuying plans.”

The sales dip might be partly due to mortgage rates ticking up in February. The higher rates are likely to have discouraged prospective homebuyers. The average rate on a 30-year fixed mortgage was 6.94% in the last week of February compared with 6.63% in the last week of January, according to Freddie Mac.

Still, new-home sales remain up on an annual basis and now claim a larger chunk of the market than they did before COVID-19, notes Jones.

“A slight uptick in mortgage rates held back the pace of new-home sales in February,” says National Association of Home Builders Chief Economist Robert Dietz. “Our latest builder surveys show that roughly one-quarter of builders reported cutting home prices in March.”

Dietz attributes February’s price decline to a combination of the builder price cuts along with a trend toward building slightly smaller homes to address affordability concerns.

Homebuilders have responded to higher rates with offers to pay down points on a buyer’s mortgage, or even offer builder financing at below market rates, according to Bright MLS Chief Economist Lisa Sturtevant. The multiple listing service covers the mid-Atlantic region.

‘To some extent, homebuilders can also switch up the product they deliver. We’ve seen more builders bring smaller, less expensive homes to the market in recent months,” says Sturtevant.

Which parts of the country saw the largest increases in new-home sales?

The Northeast experienced the biggest spike in the number of newly constructed homes for sale and sold. The region notched a 60.9% year-over-year increase in February, according to the seasonally adjusted numbers in the government report. However, sales were down 31.5% from January to February.

The West also notched large annual increases in the number of new-construction sales, rising 43.4% in February. Sales were up 2.3% from January.

The Midwest experienced a 15.3% year-over-year increase in sales, although the number of new homes for sale and sold dipped 2.4% from January.

The South, where building has been strong, was the only region to see a decline in February. New-construction sales fell 10% on an annual basis, but rose 3.7% from the previous month.

High mortgage rates have hurt the sales of existing homes, helping builders

Higher mortgage rates have generally been a boon to homebuilders, as they’ve put a crimp on sales inventory of existing homes. Homeowners who are locked into a low rate might be reluctant to sell, limiting the number of existing homes on the market.

“New construction continues to be an outsized share of the housing inventory. With existing homeowners locked into low mortgage rates, homebuilders have benefited, with more prospective homebuyers looking at new homes,” says Sturtevant.

Homebuilders are racing to meet the rising demand, with new home starts jumping 10.7% in February from the prior month, for an annual pace of 1.52 million, according to the government’s monthly new residential construction report.

About a third of all homes available for sale today are new construction, says Jones. That’s “a significant shift from pre-pandemic norms as builders offer home supply in an undersupplied market,” says Jones.

Building permits, a sign of future construction, rose 1.9% in February, also reaching an annual pace of 1.52 million—the highest level seen since August, according to that report.

Meanwhile, existing-home sales surged 9.5% in February from the prior month, the largest monthly increase in a year, the National Association of Realtors® reported last week.

“Buyer and sellers are gearing up for the spring season, and the best time to sell is approaching,” says Jones. “But the spring’s frenzy will likely be dependent on how mortgage rates move in the coming months.”

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More folks snapped up newly built homes last month thanks to lower mortgage rates.

The number of new homes for sale and sold in December jumped 8% compared with just one month earlier, according to a recent government report. Sales rose 4.4% year over year, according to the seasonally adjusted numbers in the U.S. Census Bureau and the U.S. Department of Housing and Urban Development report.

That was a reversal from November, when the number of sales fell 9% from October.

“This month’s new-home sales data suggests that eager buyers are ready and willing to jump into the housing market with each improvement in affordability,” Realtor.com® senior economic research analyst Hannah Jones wrote in her new-home sales commentary.

The rise in sales was largely due to mortgage rates coming down toward the end of last year. Rates fell from more than 7% in early November to the low 6% range by mid-December. The lack of existing homes for sale also led buyers to check out what builders have been busy putting up around the country.

The median price tag for new construction also fell to $413,200 in December, down 3% from November and 13.8% from a year earlier, according to the report.

That intoxicating combo of lower rates and prices made mortgage monthly payments more affordable for buyers, nudging many off the sidelines and into their new homes.

Monthly sales jumped the most in the Northeast, surging 32%. However, they were down 2.9% from December 2022.

Sales were up 10.6% in the South, up 9.2% in the Midwest, and down 3.4% in the West, compared with November.

“Sales rose a little, but they could boom this year if mortgage rates drop enough,” Robert Frick, corporate economist with Navy Federal Credit Union, said in a statement.”Builders are sitting on a huge supply of homes, 8.2 months worth, that they are trying to sell with incentives and lower prices, but it will take rates below 6% for them to really move.”

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The numbers: U.S. pending home sales shot up in December as falling mortgage rates brought buyers back into the market.

Pending home sales rose 8.3% in December from the previous month, according to the monthly index released Friday by the National Association of Realtors.

Pending home sales reflect transactions where the contract has been signed for a the sale of an existing home, but the sale has not yet closed. Economists view it as an indicator of the direction of existing-home sales in subsequent months.

The jump in pending-home sales was the largest since June 2020, when it rose by 14.9%.

The sales pace exceeded expectations on Wall Street. Economists were expecting pending home sales to increase by 2% in December.

Transactions were up 1.3% from last year.

The NAR also released an updated forecast for existing-home sales on Friday. The group expects existing-home sales to increase in 2024 by 13% from last year, to a 4.62 million pace.

They expect the U.S. Federal Reserve to cut interest rates four times in 2024 and the 30-year mortgage to “bounce along” in the 6% to 7% range for most of the year.

Big picture: The increases in contract signings and in mortgage applications, reported earlier in the week, indicate that there is pent-up demand from buyers who are motivated by falling mortgage rates.

But the housing market’s recovery is still limited by supply. Unless the so-called lock-in effect fades and more homeowners decide to sell their homes, sales will not be able to increase significantly.

What the realtors said: “The housing market is off to a good start this year, as consumers benefit from falling mortgage rates and stable home prices,” Lawrence Yun, chief economist at the NAR, said in a statement.

“Job additions and income growth will further help with housing affordability, but increased supply will be essential to satisfying all potential demand,” he added.

Market reaction: Stocks were up in early trading on Friday. The yield on the 10-year Treasury note rose above 4.1%.

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Home-price growth accelerated in November as the inventory of homes for sale remained unusually low.

The S&P CoreLogic Case-Shiller National Home Price Index, which measures home prices across the nation, rose 5.1% from a year earlier in November, compared with a 4.7% annual increase the prior month.

On a month-over-month basis, the index rose a seasonally adjusted 0.2% in November.

Existing-home sales fell in 2023 to the lowest level since 1995 as high mortgage rates and a shortage of homes on the market made it difficult for potential buyers to afford purchases or find homes to buy. While elevated mortgage rates have pushed buyers out of the market, home prices have held near record highs because the supply of homes for sale has remained very low. Homeowners with low rates on their current mortgages are opting to stay put rather than sell and move.

The median existing-home sale price rose 4.4% in December from a year earlier to $382,600, according to the National Association of Realtors.

The Case-Shiller index, which measures repeat-sales data, reports on a two-month delay and reflects a three-month moving average. Homes usually go under contract a month or two before they close, so the November data is based on purchase decisions made earlier this year.

The Case-Shiller 10-city index rose 6.2% over the year ended in November, following a 5.7% increase in October. The 20-city index rose 5.4%, compared with a 4.9% increase in October.

Economists surveyed by The Wall Street Journal expected the 20-city index to increase 5.7%.

Detroit had the fastest annual home-price growth in the country, at 8.2%, followed by San Diego, at 8%. The weakest market was Portland, Ore., where prices fell 0.7% on an annual basis.

A separate measure of home-price growth by the Federal Housing Finance Agency also released Tuesday found a 6.6% increase in home prices in November from a year earlier. The FHFA index rose 0.3% in November from the prior month on a seasonally adjusted basis.

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The numbers: Construction of new U.S. homes fell 14.8% in January as home builders scaled back new projects.

The pace of construction slowed as builders curtailed their activity amid wintry weather in the U.S. in January.

Housing starts fell to a 1.33 million annual pace from 1.56 million in December, the government said Friday. That’s how many houses would be built over an entire year if construction took place at the same rate every month as it did in January.

Housing starts fell to the lowest level since August 2023.

The drop in January was the sharpest since April 2020, during the coronavirus pandemic, when starts fell by nearly 27%. Not including that pandemic drop, housing starts fell by the most since 2015.

The data fell short of expectations on Wall Street, where the expected rate was 1.45 million. The numbers are seasonally adjusted.

Single-family and multi-family construction fell in January, with the latter registering a nearly 36% drop.

But in a more recent survey of builders in January, builders were upbeat about future sales of new homes and optimistic about demand, as they expect interest rates to fall through the rest of the year.

Building permits, a sign of future construction, fell 1.5% to a 1.47 million rate.

Key details: Builders scaled back construction of new single-family homes, leading to a 4.7% drop, as well as apartments, which fell 35.8%.

The only region where builders increased construction was the Northeast, where single-family starts rose 26.7%. Every other region posted a drop in January.

Permits for single-family homes rose 1.6% in January, while apartment permits fell 9%.

Big picture: Housing starts are generally a volatile data series, but the data indicate that that builders slowed down construction of new homes in January.

But most builders are optimistic about the future, as seen in a recent survey, and expect falling mortgage rates to boost home-buying demand.

Meanwhile, builders continue to benefit from the tailwind that is the persistent shortage of previously owned homes. While new homes only formed a tenth of overall sales historically, that share has jumped to 30%, the National Association of Home Builders told MarketWatch.

What are they saying? “Housing starts fell by the largest amount since April 2020 in January, led by a huge drop in multi-family starts. We suspect the multi-family sector will continue to be a drag on new development this year, given the huge number of multi-family units already under construction,” Thomas Ryan, property economist at Capital Economics, wrote in a note.

“The sharp pullback in starts could reflect bad weather in January,” Ali Jaffery at CIBC Economics, wrote in a note. But as mortgage rates inch up, “housing activity should remain weak until the Fed signals a more clear intent to ease policy,” he said.

Market reaction: U.S. stocks were up early Friday, and the yield on the 10-year Treasury note was over 4.3%.

On the back of the drop in housing starts, SPDR S&P Homebuilders ETF traded lower during the morning session, as well as all of big home builder stocks, including D.R. Horton, KB Home, Lennar, Pulte Homes and Toll Brothers.

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The numbers: Home sales rose in January as home buyers jumped on mortgage rates that were below 7% at the start of the year.

Sales activity rose to the highest level since August.

Sales of previously owned homes rose by 3.1% to an annual rate of 4 million in January, the National Association of Realtors said Thursday.

That’s the number of homes that would be sold over an entire year if sales took place at the same rate in every month as they did in January. The numbers are seasonally adjusted.

The increase in sales exceeded expectations on Wall Street, which was expecting a 3.97 million pace for January.

The December sales figure was revised to 3.88 million, up from an initial read of 3.78 million.

Compared with January 2023, home sales are down 1.7%.

Key details: The median price for an existing home in January rose 5.1% to $379,100, compared with the same month a year earlier. Prices are at an all-time high for the month of January.

Home prices are outpacing wage growth, the NAR noted, which was up 4.5% on a yearly basis in January.

Prices are still down from a peak in June 2022, when the median price of a resale home hit $413,800.

Around 16% of properties were sold above list price, the NAR said.

The total number of homes for sale in January rose 3.1% from the same time last year, to 1.01 million units.

Homes listed for sale remained on the market for 36 days on average, up from 29 days in the previous month.

Sales of existing homes were mostly up across the nation. Sales rose the most in the West, by 4.3%. The median price of a home in the region was $572,100.

All-cash buyers made up 32% of sales, the highest share since June 2014.

The share of individual investors or second-home buyers was 17%. About 28% of homes were sold to first-time home buyers.

Big picture: The housing market saw some demand return as the 30-year mortgage rate dipped below 7% in mid-December, leading to an uptick in sales in January.

But with rates moving higher, that recovery may be somewhat muted in the following months. With the Federal Reserve putting off an interest-rate cut in March, mortgage rates are over 7% once again. And home buyers are sensitive to rising rates, as seen by weekly applications data.

Changes in rates, no matter how small, make a difference, Realtor.com noted: For every half-percent drop in the mortgage rate, the monthly payment for the typical home falls by $120, which translates to a buyer saving $43,000 over the life of the 30-year mortgage.

What the Realtors said: “Multiple offers are common on mid-priced homes, and many homes were still sold within a month,” Lawrence Yun, the NAR’s chief economist, told reporters.

“The elevated share of cash deals—32%—indicated a market full of multiple offers and propelled by record-high housing wealth,” he added.

What’s next: “Of course, the next move in mortgage rates will be higher, so January’s firming may last another month or two (especially since existing-home sales are recorded at contract closing) but seems likely to dissipate by the spring,” Stephen Stanley, the chief U.S. economist at Santander U.S. Capital Markets, wrote in a note.

Hence, “all eyes are on the Fed now to cut rates this summer in order to provide relief to the buyers as well as stubborn sellers” who are locked into rock-bottom rates, Selma Hepp, the chief economist at CoreLogic, said in a statement. “Should they do so, existing-home sales should expect a better outlook for the remainder of the year.”

Market reaction: Real-estate-brokerage stocks such as Compass, Douglas Elliman, Redfin and Zillow were mixed in early trading Thursday. The yield on the 10-year note was over 4.3%.

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The numbers: Sales of newly built homes in the U.S. inched up in January, even as mortgage rates rose.

U.S. new-home sales rose 1.5% to an annual rate of 661,000 in January, from a revised 651,000 in the prior month, the Commerce Department reported Monday.

The number is seasonally adjusted and refers to how many homes would be built over an entire year if builders continued at the same pace every month.

The pace fell short of expectations on Wall Street. Economists had forecast new-home sales to total 680,000 in January.

Mortgage rates rose to a six-week high at the end of January, according to data from Freddie Mac, which might have held some buyers back.

Despite an increase in new-home sales in January, activity is still far below a recent peak of over 1 million in August 2020.

The rate of new-home sales was dragged down by weakness in the South.

The data from December was revised. New-home sales rose a revised 7.2% in December, compared with the initial estimate of an 8% increase.

The new-home sales data are volatile month over month and are often revised.

Key details: The median sales price of a new home sold in January rose to $420,700 from $413,200 in the prior month.

The supply of new homes for sale was flat between December and January.

Most of the nation reported an increase in sales of newly built homes, with the exception of a 15.6% drop in the South.

Overall, sales of new homes are up 1.8% compared with last year.

Big picture: The U.S. housing market is still lagging behind on the number of homes for sale as compared with pent-up demand, so newly built homes could continue to be a bright spot as home builders add fresh inventory.

But with mortgage rates rising over 7%, that could dampen home-buying demand, and some of that could already be showing up in the January figure.

Nonetheless, builders have in the past deployed a range of incentives to boost sales, from mortgage-rate buydowns to price cuts, which could offset the potential drop-off.

What are they saying? “The sharp fall in mortgage rates at the end of last year helped new home sales regain some more momentum in January. But so far the rebound has been slower than we were anticipating,” Thomas Ryan, property economist at Capital Economics, wrote in a note.

“Looking ahead, we still expect further falls in mortgage borrowing costs and the historically low supply of second hand homes on the market to drive demand towards newbuilds,” Ryan added.

Overall, amid the lack of supply of existing homes, “new home construction has been growing strongly and new home sales are currently accounting for 14-15% of total home sales versus 8-9% historically,” James Knightley, chief international economist at ING, said in a statement.

Market reaction: On the back of an increase in new-home sales, most major builder stocks like D.R. Horton, Lennar and Toll Brothers were up in the midday trading session, along with the SPDR S&P Homebuilders exchange-traded fund.

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The numbers: Home prices in the 20 biggest U.S. metros rose for the 11th month in a row and hit a record high amid a persistent shortage of resale homes for sale.

The S&P CoreLogic Case-Shiller 20-city price index rose 0.2% in December as compared with the previous month.

Home prices in the 20 major U.S. metro markets were up 6.1% in the last 12 months ending in December.

A broader measure of home prices, the national index, rose 0.2% in December and was also up 5.5% over the past year. All numbers are seasonally adjusted.

The 20-city and the national index are at all-time highs.

Key details: San Diego posted the biggest year-over-year home-price gains in December. Prices were up 8.8%.

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The housing market isn’t off to a good start this year.

The number of homes under contract that haven’t closed yet dropped 4.9% from December to January, according to a recent report from the National Association of Realtors®. Year-over-year pending home sales were down 8.8% in January.

The culprit? Rising mortgage rates that make it more expensive for folks to purchase homes.

“Consumers are showing extra sensitivity to changes in mortgage rates in the current cycle, and that’s impacting home sales,” said NAR Chief Economist Lawrence Yun in a statement.

Mortgage rates had dropped to a low of 6.61% in late December but ticked up slightly in January, according to Freddie Mac data.

“Buyer demand is closely tied to mortgage rates, as lower rates are an avenue to affordability in today’s market,” says Realtor.com® senior economic research analyst Hannah Jones. “The recent uptick in rates could mean slower seasonally adjusted sales as the spring homebuying season kicks off.”

Higher rates also make sellers less likely to want to list their homes. As some sellers are also buyers, many are reluctant to trade their low rates for higher ones. That’s making the housing shortage even worse, as buyers can’t find homes to purchase.

January’s cold temperatures were also to blame, according to Bright MLS chief economist Lisa Sturtevant. She covers the mid-Atlantic region.

“Some buyers might have been avoiding the snow and cold weather in January, while holding out hope for lower rates later this winter and spring,” Sturtevant said in a statement. “Homebuyers may find not only lower mortgage rates but also more inventory, if they wait until spring.”

Where the number of homes under contract rose and fell

The number of homes going under contract ticked up a little in the Northeast and West, despite the higher rates and snowier weather. But sales dropped off in the Midwest and South, according to NAR.

In the Northeast, pending sales rose 0.8% from December to January. However, they were down 5.5% year-over-year. They also rose 0.5% in the West, but were down 7% from a year earlier.

The Midwest saw the largest declines. The number of pending sales dropped 7.6% in January from December and fell 11.6%, compared to the same month a year earlier.

In the South, pending sales decreased 7.3% in January from December and came down 9% year over year.

“Southern states and those in the Rocky Mountain time zone experienced faster job growth compared to the rest of the country,” NAR’s Yun said in a statement. “As a result, long-term housing demand is increasing more significantly in these regions. However, the timing and number of purchases will largely depend on the prevailing mortgage rates and inventory availability.”

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The numbers: Construction of new U.S. homes rebounded 10.7% in February to an annual pace of 1.52 million units, the Commerce Department said Tuesday. That is the biggest gain in nine months. Despite the increase, starts are still below December’s level.

Economists on Wall Street were expecting a 7.4% rise in housing starts in February to 1.43 million. All numbers are seasonally adjusted.

The number of housing starts in January was revised slightly higher, to a drop of 12.3% to 1.37 million, from an initial reading of a 14.8% drop to 1.33 million. It is still the biggest drop since May 2022.

Building permits, a sign of future construction, rose 1.9% in February, also reaching a 1.52 million annual rate. That’s the highest level since August.

Economists expected a 1.4% increase to 1.49 million in February.

Building permits in January were revised to a fall of 0.3% to 1.49 million, from the initial estimate of a 1.5% drop to 1.4.7 million.

Key details: The construction pace of single-family homes rose by 11.6% in February, and apartment-building construction rose by 8.6%.

Home builders ramped up single-family home construction in the Midwest and South.

Permits for single-family homes rose 1% in February, while permits for buildings with at least five units or more rose 2.4%.

Big picture: Housing starts are notoriously volatile. Economists blamed severe winter weather for the big drop in January.

On Monday, the NAHB index of homebuilder sentiment moved into positive territory in March for the first time since July 2023. This should support single-family starts.

Looking ahead: “Over the next two years we’re forecasting very different paths for single and multi-family construction,” Thomas Ryan, economist at Capital Economics, said in a note to clients.

“We think single-family starts will benefit from the lack of second-hand homes on the market, which shifts demand to new builds. But that strength will be offset by weakness in the multi-family starts, leaving total housing starts not much higher,” he added.

Market reaction: Stocks were set to open lower on Tuesday. The 10-year Treasury note yield fell to 4.311% in early trading.

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