Despite higher mortgage rates, new home sales increased by 8.8% in March
The summary covers new home sales’ surprising rise despite escalating mortgage rates. Sales jumped by 8.8% in March to 693,000, marking an 8.3% yearly increase. The median sales price reached $430,700. The housing market’s complexity stems from record-low rates spurring high demand, followed by a shift as inflation and interest rates increased significantly. The summary discusses the unexpected increase in new home sales despite rising mortgage rates. In March, sales surged by 8.8% to 693,000, representing an annual increase of 8.3%. The median sales price hit $430,700. The housing market’s intricacies arise from the initial high demand due to record-low rates, followed by a shift with escalating inflation and interest rates.
New home sales rose in March despite the housing market feeling the effects of higher mortgage rates, which have recently inched even higher.
New home sales increased 8.8% from February to 693,000, according to a Tuesday report from the Census Bureau. The number of new home sales is 8.3% higher than it was in March of last year, owing in part to dampened inventory of existing homes.
The median sales price for a new home was $430,700 in March.
The housing market is in a complicated spot right now. During the worst of the pandemic, the Federal Reserve cut its interest rate target to near-zero and mortgage rates plunged to ultra-low levels. At one point in early 2021, people were locking in 2.5% mortgages — the lowest level in post-war modern history.
The low rates prompted a rash of homebuying and investment, generating a notable boost in home construction. But then, the dynamic began changing quickly when inflation rose and the Fed raised interest rates, pushing mortgage rates to the highest level since the turn of the century, with rates peaking at above 8%.
Now, with recent hotter-than-expected inflation reports and the prospect of the Fed holding its interest rate target higher for longer, mortgage rates are up again.
As of Monday, the average rate on a 30-year, fixed-rate mortgage was 7.43%, according to Mortgage News Daily, which tracks daily changes in rates. That is a significant uptick from the end of December when investors were expecting up to six interest rate cuts in 2024.
One of the side effects of that mortgage rate whiplash was that many homeowners who locked in those sub-3% pandemic-era mortgages have been holding off on selling, which has cut down the inventory of existing homes and created more demand for new homes — a phenomenon that caused home prices to keep rising alongside mortgage rates.
Existing home sales in March fell 4.3% to a seasonally adjusted annual rate of 4.19 million, the biggest decline in over a year. The rate of existing home sales was down 3.7% from the year before.
The Fed is trying to thread the needle of monetary policy. It wants to keep interest rates higher for longer now because of stickier inflation. Yet many investors and central bank-watchers fear that, if policy is too restrictive, the labor market will suffer and unemployment will rise.
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Fed Chairman Jerome Powell last week emphasized that the hotter-than-desired inflation prints over the past quarter have changed the Fed’s calculus of when rate cuts might begin. Powell’s remarks are an acknowledgement of a major shift in expectations from investors regarding interest rates recently.
“The recent data have clearly not given us greater confidence and instead indicate that it is likely to take longer than expected to achieve that confidence,” Powell said.
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