Implications:  New home sales rebounded in November after one-off factors stemming from Hurricanes Helene and Milton temporarily delayed sales in the previous month.  However, the 5.9% gain was not quite as strong as the consensus expected, and new home sales appear to be stuck in low gear, running at a similar pace to 2019.  The biggest question for the housing market is whether the recent string of rate cuts from the Federal Reserve would be enough to get homebuyers off the fence and into the housing market, resulting in a new upward-trend in sales.  But a major problem has been that since the Fed started cutting rates in September, 30-year fixed mortgage rates have risen back above 7%.  So at least so far, the widely anticipated shot in the arm to the housing market from improved affordability on the financing front hasn’t happened and most buyers continue to sit on the fence.  The good news for potential buyers is that the median sales price of new homes is down 6.3% in the past year.  It does look like a small part of this decline reflects a lower price per square foot as developers cut prices.  The Census Bureau reports that from 2022 to 2023 (the most recent data available) the median price per square foot for single family homes sold fell 1.1%. While that decline is modest, it represents a stark reversal from the 45% gain from 2019 to 2022.  That said, most of the drop in median prices is likely due to the mix of homes on the market including more lower priced options as developers complete smaller properties.  Supply has also put more downward pressure on median prices for new homes than existing homes.  The supply of completed single-family homes is up nearly 300% versus the bottom in 2022 and is at the highest level since 2009. This contrasts with the market for existing homes which continues to struggle with an inventory problem, often due to the difficulty of convincing current homeowners to give up the low fixed-rate mortgages they locked-in during the pandemic.  While the future cost of financing remains a question, lower prices and an abundance of inventories are giving potential buyers a wider array of options that will eventually help fuel a rebound in new home sales.

Click here for a PDF version