What happened: As mortgage rates eased, newly built home sales continued to increase in January along with housing demand and builder confidence. Although the increase fell below expectations, builders continue to maintain their advantage heading into this year’s home shopping season.
Why it matters: Despite the recent uptick in the supply of existing homes coming onto the for-sale market, resale inventory remains nearly 40% below its pre-pandemic level. New construction is helping to fill that gap. As a result, sales of newly built homes increased in the past year while existing-home sales fell. The decline in mortgage rates in December coupled with a steady supply of newly built homes continue to propel new home sales higher.
Builder sentiment continues to improve and the share of builders offering incentives has fallen, according to the National Association of Home Builders. Unexpected population growth and higher real incomes are likely to support housing demand. Despite the increase in mortgage rates since January, new home sales could keep moving higher.
Although the pace is slowing, builders will likely maintain their advantage in the current environment by building more efficiently and making the math work for prospective home buyers with small price cuts and other incentives, such as rate buydowns and closing cost credits.