New home sales tick up but miss the mark

Analysts expected stronger gains, inventory climbs as prices ease

New home sales tick up but miss the mark

New home sales in the US edged higher in January, with builders and buyers taking advantage of lower mortgage rates early in the year, according to government data released on Monday. However, experts caution that the momentum may prove short-lived as interest rates rise again.

Purchases of new single-family homes increased by 1.5% to an annualized pace of 661,000, slightly below the 684,000 rate forecast by economists surveyed by Bloomberg. Sales increased in the Northeast and the West, while the South saw a decline.

The year started on a hopeful note for the housing sector, as easing mortgage rates lifted the spirits of homebuilders and gave a slight boost to the market for resale homes. But with the Federal Reserve taking its time on cutting borrowing costs, the recent climb in rates might put a damper on the fledgling recovery in housing.

“Builder sentiment has improved as interest rates have dropped and buyers have begun to return in increasing numbers,” said Kelly Mangold, principal at RCLCO Real Estate Consulting. “As fears of a significant recession lessen, buyers who have been sidelined for the past year or more feel more confident about making a purchase.”

Read more: Is the plus-5% mortgage rate environment here to stay?

January also marked the fifth consecutive month of decline in the median sales price of new homes, which fell to $420,700, even as the number of homes for sale increased to the highest level in over a year at 456,000.

NerdWallet mortgage expert Holden Lewis commented: “Sales of newly built houses rose modestly in January as builders applied their energies to both ends of the market — the inexpensive and the expensive. Some 15% of new homes sold for less than $300,000, compared to 11% in January 2023. Meanwhile, 14% of new homes were sold for $750,000 or more, up from 12% a year earlier.”

Lewis also mentioned the growing inventory of unsold new homes, hinting that builders might ramp up incentives to sell these properties.

“The inventory of unsold new homes went up a bit, so builders might increase their incentives to clear those homes off the virtual shelves,” he said.

“With resale inventory remaining tight, the new home market can meet pent-up demand for households seeking space that better meets their needs,” Mangold added.

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