In a market environment where housing supply is tight, buyers are increasingly turning to new constructions, a trend that propelled a significant increase in new home sales last month. According to the latest data from the U.S. Census Bureau and the Department of Housing and Urban Development, March saw a 8.8% increase in new single-family home sales over the previous month, with an adjusted annual rate of 693,000 units, up 8.3% from last year, marking the highest sales level since last September.
There has also been an adjustment in the prices of new homes, with the median sales price reaching $430,700, a decrease of 1.8% from the same period last year. This price drop reflects builders' response to market demand, increasingly constructing smaller and more affordable homes to attract buyers affected by high mortgage rates. Although rising mortgage rates typically curb the willingness to buy, this pricing strategy in the new home sector seems to have mitigated the negative impact of higher rates.
Regionally, new home sales in the Northeast surged by 27.8% from February to March, the largest increase nationwide, although it still represents a 13.2% decline from the same period last year. Other regions such as the West, South, and Midwest saw increases of 8.6%, 7.7%, and 5.3% respectively. This indicates varying market responses across regions, but overall, the appeal of the new home market is growing.
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Meanwhile, although the rise in mortgage rates has significantly impacted the existing home market, leading to a 3.7% year-over-year decrease in resale homes in March, the new home market appears more resilient. According to Freddie Mac, the average mortgage rate in March was 6.82%, but by April 18, the rate for a 30-year fixed mortgage had risen to 7.1%, the first time this year it has exceeded 7%, which may further squeeze potential buyers' budgets.
Carl Harris, chairman of the National Association of Home Builders, emphasized in a statement that despite some dampening of market demand due to rising rates, builders are actively increasing the supply of new homes to boost inventory and compensate for shortages in the resale market. "However, with the arrival of spring, rates exceeding 7% may cause some buyers to temporarily hold off," he added.
To attract buyers who are hesitant due to high mortgage rates, builders are launching more affordable housing types and offering various incentives, including interest rate subsidies. These strategies indicate that although house prices and mortgage rates remain high, home builders are striving to meet a broader market demand by offering more options for smaller homes, demonstrating a market response to mitigate price increases.
Lisa Sturtevant, Chief Economist at Bright MLS, noted that although the median price of new home sales in March was higher than the existing home prices reported by NAR, the rate of price growth in new homes has slowed, as evidenced by new home prices still being higher than pre-COVID-19 pandemic levels yet having increased by 31% compared to four years ago. In her statement, she mentioned, "Despite rising mortgage rates, builders' confidence remains high, and the new home market holds a significant share of the overall housing market, thus attracting buyers looking for new homes in a limited existing housing supply market."
