High Mortgage Rates in February Slow New Home Sales in America

High mortgage rates in February contribute to a slowdown in new home sales across America. This decline suggests that elevated borrowing costs are impacting buyer affordability and dampening demand for newly constructed homes, highlighting the sensitivity of the housing market to interest rate fluctuations.

According to new data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau, a small rise in U.S. mortgage rates in February 2024 led to sales of newly built, single-family homes to edge down 0.3% to a 662,000 seasonally adjusted annual rate. The pace of new home sales in February is up 5.9% from a year earlier.

"While new home sales remained flat in February, our latest home builder surveys show increased levels of confidence driven by the ongoing lean levels of existing home inventory," said Carl Harris, chairman of the National Association of Home Builders (NAHB). "As interest rates subside over the course of 2024, additional home buyers will be priced into the market and new construction will be needed to meet this demand."

"A slight uptick in mortgage rates held back the pace of new home sales in February," said NAHB Chief Economist Robert Dietz. "Our latest builder surveys show that roughly one-quarter of builders reported cutting home prices in March. The price cuts, in combination with building slightly smaller homes, can be seen in today's data that show a 7.6% year-over-year decline for median new home prices."

Mortgage rates averaged 6.78% in February compared to 6.64% in January, according to Freddie Mac.

A new home sale occurs when a sales contract is signed, or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the February reading of 662,000 units is the number of homes that would sell if this pace continued for the next 12 months.

New single-family home inventory in February remained elevated at a level of 463,000, up 1.3% from January. This represents an 8.4 months' supply at the current building pace. A measure near a 6 months' supply is considered balanced. However, with only a 2.9 months' supply of existing homes for sale, new home inventory can remain above this balanced measure.

The median new home sale price in February 2024 was $400,500, edging down 3.5% from January, and down 7.6% compared to a year ago.

Regionally, on a year-to-date basis, new home sales are up 47.0% in the Northeast, 29.7% in the Midwest and 41.0% in the West. New home sales are down 13.4% in the South.

Source: World Property Journal