New home sales reversed course in December after a two-month downward slide, thanks to falling interest rates in the closing weeks of 2023 that helped to bring buyers off the sidelines and provide a boost for new home sales.
Data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau states that sales of newly built, single-family homes were at a rate of 664,000 in December, 8.0% above the revised November rate of 615,000. The pace of new home sales is up 4.4% from the December 2022 estimate of 636,000.
On an annual basis, new home sales totaled 668,000 in 2023, up 4.2% from the 2022 figure of 641,000.
The median sales price of new houses sold in December 2023 was $413,200. The average sales price was $487,300.
“The solid new home sales rate in December was fueled by a lack of existing inventory in the resale market and declining interest rates,” said Alicia Huey, chairman of the National Association of Home Builders (NAHB) and a custom home builder from Birmingham, Alabama. “The rise in sales also coincides with our latest builder surveys, which show a marked increase in future sales expectations because of falling mortgage rates.”
“New home sales ended the year on a high note thanks largely to falling interest rates and a decline in existing home sales,” said Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis. “And while moderating interest rates are a promising sign for new home sales in the year ahead, long-term issues such as a shortage of buildable lots, a lack of skilled labor and excessive regulations will continue to pose challenges for builders.”
New single-family home inventory in December remained elevated at a level of 453,000, up 0.4% compared to a year earlier. This represents an 8.2 months’ supply at the current building pace. A measure near a 6 months’ supply is considered balanced. Completed, ready-to-occupy inventory, 88,000 homes in December, is up 22.2% from a year ago. However, that inventory type remains just 19% of total inventory.
Regionally, on a year-to-year basis, new home sales are up in all four regions: up 3.5% in the Northeast, 3.6% in the Midwest, 5.2% in the South and 2.1% in the West.
CoreLogic Chief Economist Dr. Selma Hepp commented:
“We are likely to see a soft but steady rebound in home sales which reflect pent up demand and optimism that has built over expectations of lower mortgage rates. Builder surveys also show cautious optimism as we enter the new year. Permits are also up which will provide some relief in supply and will help keep home sales going if interest rates continue their downward trend throughout 2024, as expected. However, home affordability will not improve greatly this year as prices continue to rise and mortgage rate decline remains marginal,” Hepp concluded.