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May 24, 2023 - Economy & Business

New home sales are surging — here’s why

Matt Phillips
Data: U.S. Census Bureau, National Association of Realtors; Chart: Axios Visuals
Data: U.S. Census Bureau, National Association of Realtors; Chart: Axios Visuals

You have to fish where the fish are. So, would-be homebuyers are casting their lines in the market for new homes.

Driving the news: Sales of newly built homes jumped a surprising 4% in April, to an annual rate of 683,000.

  • Sales volumes are roughly back to their pre-COVID levels — and are up 11.8% over last year.
  • On the flip side, sales of existing homes are down 23% from last year.

Why it matters: It shows the new housing market has gotten a lift from frustrated buyers facing slim pickings of existing homes.

Context: The surge in mortgage rates over the last year has left a logjam in the existing home market.

  • Demand is down as higher rates made buying houses less affordable to a lot of people.
  • But higher rates have also pushed supply down — as homeowners who might have moved are reluctant to give up the low rate on their mortgages.

The result: Prices for existing homes — the vast majority of homes in the U.S. — have remained stubbornly high. Sales activity is way down.

Meanwhile, the market for newly built homes is a bit more flexible.

  • Since no one is living in the newly built home, no one has to give up a super-low mortgage rate to move.

Between the lines: Homebuilders also appear more willing to cut prices in order to move their inventory of houses.

  • So far this year, the median price of a new home is down 12%, compared to a 6% increase for existing homes.

What they're saying: "The improving rate of new home sales is a reflection of the high levels of inventories of new homes compared to existing homes," wrote Richard de Chazal, macro analyst with brokerage firm William Blair.

  • "Homebuilders are stuck with excess supply and are increasingly being forced to offer more aggressive incentives to clear the market," he wrote.

The bottom line: For homebuyers looking for a break, it seems to make a lot of sense to take a look at the market for newly built houses.

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