New Home Sales Up in January but Higher Rates Signal Further Weakness

Declining mortgage rates and home prices in January, coupled with home builders use of sales incentives, helped boost new home sales last month. The U.S. Department of Housing and Urban Development and the U.S. Census Bureau estimated sales of newly built, single-family homes in January at a 670,000 seasonally adjusted annual pace, which is a 7.2% increase over upwardly revised December rate of 625,000 but is 19.4% below the January 2022 estimate of 831,000.

A new home sale occurs 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. In addition to adjusting for seasonal effects, the January reading of 670,000 units is the number of homes that would sell if this pace continued for the next 12 months.

New single-family home inventory declined in January but remained elevated at a 7.9 months’ supply. A measure near a 6 months’ supply is considered balanced.

A year ago, there were just 34,000 completed, ready to occupy homes available for sale (not seasonally adjusted). By January 2023, that number increased 115% to 73,000, reflecting flagging demand and more standing inventory due to lower sales. Completed, ready to occupy inventory however remains just 16.7% of total inventory and homes under construction accounts for 62.6% of the inventory. Homes that have not started construction when the sales contract is signed accounts for 20.6% of new homes sold in January.

The median new home sale price declined for the third straight month after peaking in October at $496,800. In January the median price was $427,500, down 8.2% from December. The share of entry-level homes priced below $300,000 has been steadily falling in recent years. Only 14% of the homes were priced in this entry-level affordable range while 33% of the homes were priced above $500,000. The majority of homes (53%) were priced between $300,000-$500,000.

Regionally, on a monthly basis, new home sales fell in three regions, down 19.4% in the Northeast, 6.9% in the Midwest, and 7.3% in the West. New home sales rose 17.1% in the South.

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