New home sales, to the surprise of many, rose by 5.8% in November to a seasonally adjusted annual rate of 640,000, according to data published by the U.S. Census Bureau and the Department of Housing and Urban Development (HUD) on Friday.
New home sales data last month was much stronger than had been anticipated; the market had expected a contraction of 4.7% in November. The median sales price of new houses sold last month was $471,200 and the average sales price was $543,600, according to the data.
A combined dip in mortgage rates and significant incentives from homebuilders was the driving force last month, analysts said. But make no mistake, conditions are still sub-optimal and the new home sales data doesn’t capture all of the headwinds, such as declines in permitting and cancelations.
“Despite the modest uptick in contracts signed on new homes, the housing market remains in a lull, a pattern that likely will continue as we head into January,” Lisa Sturtevant, the chief economist of Bright MLS, said in a statement. “The median price of a new home rose again in November, defying expectations that builders would slash prices to work through inventory… Instead of cutting prices, builders seem to be working through existing inventory by offering concessions instead of price cuts. Home prices did fall from October, which is more of a seasonal trend.”
The Census Bureau and HUD also sharply revised estimates downward for the past three months to account for high rates of cancelations. Since July, about 10,000 contracts have been canceled each month, according to data from John Burns Consulting. Though gross new home sales year-to-date is 602,000, new new home sales are about 519,000, the company’s data shows.
The seasonally adjusted estimate of new houses for sale at the end of November was 461,000, which represents 8.6 months of supply at the current sales rate.
The incentives will need to be amped up if homebuilders are to make sales.
“Builder sentiment and permit data indicate ongoing weakness in the new-home market,” said First American Deputy Chief Economist Odeta Kushi. “With higher mortgage rates and greater economic uncertainty, new-home prices will need to continue to adjust to entice more buyers.”
Added Sturtevant: “Homebuilders are banking on home shoppers returning to the market in the first part of 2023. With mortgage rates sliding, it is likely that there will be more traffic as we head into spring. However, new home builders will face more competition from existing homes as inventory continues to rise.”