Builders offer price cuts and rate buydowns to counter high prices in March
New home sales jumped in March thanks to a persistent shortage of existing homes for sale and incentives offered by builders to offset the impact of elevated home prices and mortgage rates.
Sales of new single-family houses in March 2024 soared to a seasonally adjusted annual rate of 693,000, according to the latest government data, That’s 8.8% higher than the revised February rate of 637,000 and 8.3% above the March 2023 estimate of 640,000.
Analysts point to several factors driving this surprising surge in new home purchases. A persistent shortage of existing homes for sale has pushed some buyers toward the new construction market. Additionally, builders have ramped up completions, with nearly 350,000 new homes finished in the first quarter of 2024, creating a larger inventory of available new housing.
Builders have also turned to aggressive incentives to combat the impact of high home prices and mortgage rates.
“Homebuilder confidence and buying incentives are helping to counterbalance high values and interest rates,” said CoreLogic chief economist Selma Hepp.
“[Builders] were eager to sell [the homes],” NerdWallet mortgage expert Holden Lewis added. “And some builders are offering incentives, such as rate buydowns, to entice buyers.”
However, Lewis noted these factors — the shortage of existing homes, completion of new homes, and incentives — are beginning to fade.
“Compared to years in the past, new home sales still aren't performing as well as necessary to help reduce the high demand for new homes in the near term," Hepp said.
At the end of March, there were an estimated 477,000 new homes remaining for sale, representing an 8.3-month supply at the current sales rate.
While initial predictions suggested lower mortgage rates by this point in the year, recent strong job growth numbers have prompted the Federal Reserve to delay potential rate cuts. However, Gregg Logan, principal at RCLCO Real Estate Consulting, remains optimistic.
“Nonetheless, lower mortgage rates are still anticipated in the second half of the year, which will lead to stronger new home sales in the third and fourth quarter,” he said.
The median sales price of new houses sold in March 2024 was $430,700, while the average sales price was $524,800.
“Although home prices and mortgage rates remain high, prices have been rising more slowly, and homebuilders have been introducing a broader mix of smaller homes in order to bring prices in reach of more home buyers,” said Logan. “The Feds expected rate cuts and lower inflation numbers had been predicted to lead to gradually lower mortgage rates at this point, but strong job growth numbers have led the Fed to delay cutting the Fed Funds rate.”
Nonetheless, Logan expects the deceleration of home prices to continue as rates come down later this year.
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