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

A 'For Sale' sign hangs in front of a home in Miami, Fla., on June 21, 2022. (Joe Raedle/Getty Images)

New-home sales in the United States rose last month even though home prices increased during this period, with easing mortgage rates possibly boosting buying activity.

Sales of new single-family homes in March 2023 rose by 9.6 percent to 683,000 from 623,000 in February, according to an April 25 press release (pdf) by the U.S. Census Bureau. This is the highest number of sales since April 2022, and is 3.4 percent below the March 2022 sales figure. The jump in sales between February 2023 and March 2023 occurred even as home prices went up. The median sales price of a home spiked from $433,200 to $449,800 during this period, an increase of 3.83 percent.

“U.S. new-home sales unexpectedly increased in March to the highest level in a year, suggesting an easing in mortgage rates is helping the #housing market find some footing,” the Home Builders Association of Central Arizona (HBACA) stated in a tweet on April 25.

According to data from Freddie Mac, the average rate for a 30-year fixed-rate mortgage was 6.65 percent for the week ended March 1. This had dropped to 6.32 percent by the week ended March 29.

Many existing homeowners are also hesitant to sell their properties because that could mean they will have to take on a new mortgage for a new home with a higher interest rate. Prospective homebuyers are therefore likely to have shifted their attention to the new-home market.

Region-wise, the Northeast saw the biggest jump, with new single-family home sales surging by 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

An April 25 report by S&P Dow Jones Indices (S&P DJI) revealed that home price growth eased down in February on a monthly basis.

The National Home Price NSA Index, covering all nine U.S. census divisions, 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.

All 20 cities in the composite registered lower prices in the year ended February 2023 compared to the year ended January 2023.

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

An April 20 report by real estate brokerage Redfin points out that homebuyers are “backing off” from the housing market, mainly due to elevated housing costs.

Data from the National Association of Realtors shows that 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.