New home sales continued to rise in February, jumping 1.1% from January to a seasonally adjusted annual pace of 640,000 homes, according to data published on Thursday by the U.S. Census Bureau and the Department of Housing and Urban Development (HUD).
On a year-over-year basis, however, new home sales are still down 19.0%.
“New home sales increased in February for the third straight month, in a sign that the market may be stabilizing,” Kelly Mangold, the principal of RCLCO Real Estate Consulting, said in a statement. “As buyers approach spring buying season, price adjustments and stabilized mortgage rates have led many buyers to commit before a potential upswing in demand.”
The uptick in the sales pace in February resulted in a 0.7% monthly decrease in new home inventory, with just 436,000 new homes remaining on the market at the end of the month. This represents 8.2 months of supply at the current sales pace.
“Homebuilders are still feeling cautiously optimistic about a strong spring home buying season, despite mortgage rate volatility and economic uncertainty,” Lisa Sturtevant, the chief economist at Bright MLS, said in a statement. “A key reason for builder optimism is the very low inventory in the existing home market, which will force more buyers into the new home market. The number of existing homes for sale is still less than half of what it was prior to the pandemic. In many markets, buyers are still facing stiff competition, often making offers on multiple homes before successfully purchasing.”
As a result of this increased competition, the median sales price on new homes sold in February was $438,000, up 36.7% year over year.
“Higher mortgage rates, which approached 7% last month, have taken a toll, eroding buyers’ purchasing power,” Sturtevant added. “Builders had been reluctant to drop prices, but the economic reality made downward pressure on price growth inevitable. Prices nationally are still more than 30% higher than they were three years ago.”
Regionally, the sales pace was down in the Northeast (21,000 homes) and the Midwest (71,000 homes) on a month-over-month basis, with the Northeast recording the larger drop at 40.0%. The South (415,000 homes) and the West (133,000 homes) were both up month over month, rising 3.0% and 8.1%, respectively.
On a yearly basis, all regions recorded drops in annual sales pace, with the Northeast recording the largest drop at 55.3%.