New home sales saw another increase in February, rising for the third consecutive month as mortgage rates receded from early-year highs and buyers looked to take advantage.
According to numbers from the U.S. Census Bureau and the Department of Housing and Urban Development, sales of new single-family houses in February came in at a seasonally adjusted annual pace of 640,000. That’s up 1.1% from January.
The modest growth was driven by monthly sales upticks in the South, which saw an increase of 3.0%, and the West, where sales were up 8.1%.
Unlike existing home sales, which just halted a long streak of sales decreases in February, new home sales have seen a bit of a stronger rebound of late, thanks in part to the very same issues holding existing home sales down. Existing home inventory has stayed very thin in several markets, pushing more homebuyers toward newly constructed homes. And builders have done their part, enticing buyers into the fray with rate buy-downs, discounts and other incentives.
Still, sales activity remains relatively subdued despite the marginal increases of the past months. Year over year, new home sales are still down 19.0% year over year.
“Builders continue to face challenges in terms of higher interest rates, elevated construction costs and access to critical materials like electrical transformers,” said Alicia Huey, chairman of the National Association of Home Builders (NAHB). “Nonetheless, the lack of existing home inventory means demand for new homes will rise as interest rates decline over the coming quarters.”
“The February new home sales data points to an increase for the monthly pace of single-family construction starts later in 2023 given a rise in builder sentiment and an increase for sales of homes not yet started construction,” added Robert Dietz, the NAHB’s chief economist. “However, concerns remain about the tightening of credit conditions for acquisition, development and construction loans for smaller builders due to recent stress for the banking system.”
New home prices were up in February, growing month over month from $427,500 to $438,200. And with sales up, however modestly, new home inventory dropped for the fifth consecutive month, falling to 436,000 units, a supply of 8.2 months at the current sales rate.