New Home Sales Rise Despite 7% Mortgage Rates: Economist Optimistic

Amid challenges like low supply and high prices, prospective homebuyers are paying attention to new construction, which offers more incentives and availability than previously owned homes. Sales of new single-family houses surged by 8.3% in March from a year earlier, with a median sales price of $430,700. In contrast, sales for existing homes dropped by 3.7% over the same period, highlighting the appeal of new builds amid the current market conditions.

With existing homeowners hesitant to sell due to the lock-in effect of low mortgage rates, buyers are increasingly drawn to builders who offer more flexibility in pricing. Builders provide incentives like rate buy-downs, price cuts, and even coverage of closing costs, enticing buyers and fueling activity in the new home sales market. Additionally, the price gap between new builds and existing homes has narrowed significantly in recent months, making new construction a more viable option for price-sensitive buyers who may have previously been limited to the existing homes market. 

ATTOM: Home Seller Profits Dip in Q1

In the first quarter of 2024, profit margins for median-priced single-family homes and condos in the US dropped to 55.3%, marking a two-year low and a decline from 57.1% in the previous quarter and 56.5% a year ago. This decrease accompanied a 4.3% quarterly drop in the nationwide median home price, one of the most significant quarterly declines in the past decade. Despite this decline, seller returns remain higher than much of the immediate pre-pandemic period, suggesting continued strength in the housing market.

Rob Barber, CEO of ATTOM, noted the downward trends in price and profits, prompting questions about whether the housing market boom is slowing down or coming to an end. However, Barber also emphasized caution, highlighting a similar downward pattern in late 2022 and early 2023, followed by a market surge. He stressed the importance of observing the Spring buying season as a significant indicator of the market’s momentum. Additionally, the report revealed a slight decrease in homeownership tenure to 7.77 years, although home sales following foreclosures increased slightly to 1.7% in the first quarter. All-cash sales also rose to 41.1% of single-family home and condo sales, indicating continued investor activity in the housing market.

Case-Shiller Index: 8th Straight Month of Annual Gains

The S&P CoreLogic Case-Shiller National Home Price Index saw a significant surge, growing by 6.4% year over year in February, marking its eighth consecutive month of annual growth. This increase from 6.0% the previous month represents the most significant yearly rise since November 2022. Despite short-term declines last year, home prices nationwide are now mainly at or near all-time highs, rising by 1.3% compared to the recent peak in June 2022.

Brian D. Luke, head of commodities, real, & digital assets at S&P Dow Jones Indices, highlighted the housing market’s resilience, noting that this is the second time home prices have pushed higher amidst economic uncertainty. The indices tracking home prices in 10 major metro areas and 20 cities logged yearly jumps of 8.0% and 7.3%, respectively, reaching all-time highs. Every city tracked in the index reported annual home price gains, with four cities: San Diego, Los Angeles, New York, and Washington, D.C. reaching all-time peaks.

Source:

Vaimberg, Ron. “Weekly Newsletter – January 6, 2023.” Ron Vaimberg International, Ron Vaimberg, 6 Jan. 2023, https://rvionline.thinkific.com/courses/take/rvi-weekly-newsletter/texts/41523497-weekly-newsletter-january-6-2023.