New home sales are surging — here’s why
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.
- In the latest survey from the National Association of Home Builders, 30% of respondents said they had cut prices in April.
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.