New home sales started off 2023 on a positive note, rising 7.2% from December to a seasonally adjusted annual pace of 670,000 homes, according to data published by the U.S. Census Bureau and the Department of Housing and Urban Development (HUD) on Friday. This marks the second consecutive month of increases and the strongest sales pace since March 2022.
On a year-over-year basis, however, new home sales are still down 19.4%.
“January marked a surge of people signing contracts to buy new homes. The increase in contract signings can be attributed to a decline in mortgage rates in January after a run-up in rates in October and November,” Holden Lewis, NerdWallet’s home and mortgage expert, said in a statement. “Rates have bounced higher since January, which likely is acting as a drag on new home sales in the meantime.”
The uptick in the sales pace resulted in just 439,000 new homes remaining on the market at the end of the month, representing 7.9 months of supply at the current sales pace, down from 8.7 months in December.
“The backlog of new construction homes continues to emerge into the market just in time for the spring shopping season,” Nicole Bachaud, Zillow’s senior economist, said in a statement. “Many home builders are offering incentives to buyers, sweetening the deal just enough to bump sales from the month prior.”
As a result of incentives such as price drops, the median new home sales price dropped from $465,600 in December to $427,000 in January, despite the increase in demand.
Regionally, on a month-over-month basis the sales pace was down in the Northeast (25,000 homes), Midwest (67,000 homes), and the West (127,000 homes), with the Northeast recording the largest drop at 19.4%.
The South (451,000 homes) was the only region to rise on a monthly basis, jumping 17.1%. On a yearly basis, all regions recorded drops in annual sales pace, with the West recording the largest drop at 46.9%.
Looking ahead, experts are optimistic about the spring selling season for new construction.
“There is still a large chunk of new construction homes currently under construction, and when those homes hit the market, especially over the next few months, we will see spring home buyers – those who can afford the higher new construction price tags – having more options and opportunities to break into homeownership,” Bachaud said.