New-Home Sales Unexpectedly Rise in March to Highest Level in a Year

New-Home Sales Rise Despite Increasing Prices

Despite a rise in home prices, new-home sales in the United States increased last month, possibly due to easing mortgage rates. According to a press release by the U.S. Census Bureau, sales of new single-family homes in March 2023 rose by 9.6 percent to 683,000 from 623,000 in February. This is the highest number of sales since April 2022. The median sales price of a home also increased by 3.83 percent during this period.

The Home Builders Association of Central Arizona tweeted that the unexpected increase in new-home sales suggests an easing in mortgage rates is helping the housing market find some footing. Data from Freddie Mac shows that the average rate for a 30-year fixed-rate mortgage dropped from 6.65 percent to 6.32 percent between the weeks ended March 1 and March 29.

Region-wise, the Northeast saw the biggest jump in new single-family home sales, with a surge of 170.8 percent month over month. The West registered a sales increase of 29.8 percent, the Midwest 6 percent, and the South saw sales drop by 5.4 percent during this period.

By the end of March, there were 432,000 homes for sale across the United States, representing a supply for 7.6 months at the current rate of sales. This is the lowest supply number since April 2022.

Slowing Price Growth

A report by S&P Dow Jones Indices revealed that home price growth eased down in February on a monthly basis. The National Home Price NSA Index only rose by 2 percent annually in February 2023, down from the 3.7 percent gain a month back. The 20-City Composite rose by just 0.4 percent, less than the 2.6 percent gain in January.

Craig J. Lazzara, managing director at S&P DJI, pointed out that the data pre-dates the disruptions faced by the commercial banking industry in March. He believes housing prices might struggle to rise in the short term.

“Although forecasts are mixed, so far the Federal Reserve seems focused on its inflation-reduction targets, which suggests that interest rates may remain elevated, at least in the near term,” he said.

“Mortgage financing and the prospect of economic weakness are therefore likely to remain a headwind for housing prices for at least the next several months.”

Elevated Housing Costs

A report by real estate brokerage Redfin points out that homebuyers are “backing off” from the housing market, mainly due to elevated housing costs. The monthly principal and interest payment for a home was $1,827 in February 2023, up 32 percent from $1,384 a year back. However, median family income only rose 6 percent during this period.

“Homebuyers are window shopping, and many are entering the store, but few of them are making it to the cash register yet,” said Redfin deputy chief economist Taylor Marr. “There’s not much on the shelves to choose from, and high mortgage rates and still-high prices are making homes too expensive for many buyers.”

“Some buyers are discouraged by mortgage rates rising this week, which is partly due to stronger-than-expected bank earnings making it more likely the Fed will hike interest rates next month.”

The 30-year fixed-rate mortgage averaged 6.39 percent for the week ended April 19, up from 5.11 percent a year back.