Optimism spreads after new home sales climb in December

New home sales increased in December — a sign that new residential sales have continued to rebound in recent months. Last month, new home sales increased by 2.3% to a seasonally adjusted annual rate of 616,000, according to data published by the U.S. Census Bureau and the Department of Housing and Urban Development (HUD).

But while mortgage rates have been tumbling down, and while builders have been offering incentives to buyers, it wasn’t enough to prop up new residential sales across 2022. 

In addition, the median sales price of new houses that were sold in December dropped to $442,100, and the average sales price dipped to $528,400. In November, the median sales price for new houses was $471,200 and the average sales price was $543,600, according to the data.

The uptick in new home sales last month was largely due to mortgage rates dropping in December — which occurred after the 30-year mortgage rate peaked at above 7% in October and November. Incentives from builders also played a role, according to Holden Lewis, home and mortgage expert at NerdWallet .

“Home builders reduced prices to stimulate sales,” Lewis said in a statement. “In December, the typical new home cost almost $50,000 less than in October. The combination of lower rates and lower prices boosted sales in December and might be doing the same in January.”

The seasonally adjusted estimate of new houses for sale at the end of December was 461,000, which represents nine months of supply at the current sales rate.

While new home sales have been on an upward trend in the recent months, the rate lags behind 2021 levels. Compared to sales of 771,000 in 2021, about 644,000 new residential homes were sold in 2022 — a 16.4% decline year over year. 

“The housing market cooled off during the fall and early winter of 2022 , and new home sales followed suit with new sales lagging far behind 2021 and setting back closer to pre-pandemic levels,” Nicole Bachaud, senior economist at Zillow , said in a statement. 

Despite homebuilders’ attempts to attract buyers, affordability challenges made it harder for buyers to enter the market, Fannie noted.

And, the small dips in rates and home prices may not produce sufficient buying power for buyers, both of which are expected to limit buyers from entering the market.

“Builders are all but throwing incentives at buyers to attract them back to the new home market, but that doesn’t seem like enough to combat high mortgage rates and prices,” Bachaud said. 

Mortgage applications for new homes in December decreased by 5% from November and 25.2% year over year, according to the Mortgage Bankers Association . 

The decline in activity was in line with single-family housing starts, which were 32% lower than a year ago, and were indicative of higher mortgage rates and the weakening economy holding back buyers at the end of last year, according to Joel Kan, MBA’s vice president and deputy chief economist.

However, improved builder sentiment, declining rates and increased demand for mortgages offer optimism in January, according to economists. 

“The housing market is still in need of more starter and entry. About 644,000 new residential homes were sold in 2022, a decline of 16.4% from 2021-level homes, especially when current demographic trends point to the potential for more younger households to enter homeownership in the near future. New construction of these units will help these buyers entering the housing market,” Kan said. 

“We might see the market thaw out before the spring shopping season sets up, which will hopefully translate into more construction to add much needed housing supply when it’s needed the most,” Bachaud noted.