New Home Sales Increased In March

New home sales increased by more than expected in March but remain down significantly from last year, according to new estimates from the U.S. Census Bureau and the Department of Housing and Urban Development.

Sales rose by 9.6% to a seasonally adjusted annual rate of 683,000, compared to just 1.1% in February.

Sales remain down 3.4% YOY, which boasted an annual rate of 707,000.

The seasonally‐adjusted estimate of new houses for sale was 432,000, representing a supply of 7.6 months at the current sales rate.

Inventory remains tight even as more people are home-shopping this spring. As a result, home prices unexpectedly rose in February.

“Homebuyers are window shopping and many are entering the store, but few of them are making it to the cash register yet,” said Redfin Deputy Chief Economist Taylor Marr. “There’s not much on the shelves to choose from, and high mortgage rates and still-high prices are making homes too expensive for many buyers.”

New home sales have soared as existing inventory dwindles but buying a newly built home is still out of reach for many Americans.

Only 35.9 million out of a total of 132.5 million households are currently able to afford a newly built home based on 2022’s median price of $425,786.

Homebuilders are cutting production as costs and rates increase. Houses are more expensive to build and fewer people are willing to buy them, making it fiscally unsound to invest in much-needed inventory.

As mortgage rates moderate, buying new homes will likely become more expensive, not less.

“Rather than lower their prices, homebuilders have been buying down mortgage rates for customers… So if market rates fall to that level, builders can forgo the buy-downs and just boost profit without doing anything to change affordability,” Conor Sen, founder of Peachtree Creek Investments, recently argued in Bloomberg.

“We’d probably see production increases, but that additional supply wouldn’t arrive on the market until the second half of 2024, at best. That’s good in the long run, but not much help to anyone looking to buy in the next year.”

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