Sales of newly built houses are on the upswing, likely the result of a dip in mortgage rates combined with homebuilder incentives to drum up demand.
February new home sales totaled a seasonally adjusted annual rate of 676,000, meaning that many homes would change hands over the next 12 months at this pace. The rate is 1.8% higher than the revised January figure and 5.1% above the same month of 2024, according to a report the U.S. Census Bureau and the Department of Housing and Urban Development released Tuesday.
Lower mortgage rates helped prompt consumers to act, analysts say. The average 30-year, fixed-rate mortgage rate dropped from 6.95% at the end of January to 6.76% in the last week of February, according to Wells Fargo, citing data from mortgage giant Freddie Mac. The average fell further to 6.67% last week.
"Modest mortgage rate relief aside, builder incentives like price cuts and mortgage rate buydowns are an ongoing tailwind for the new home market," Wells Fargo said in a report Tuesday.
Builders ultimately have reason to be upbeat, given the chronic shortage of new homes under construction across the country, said Mark Fleming, chief economist at First American, a title insurance and settlement services firm.
Over the long term, "we are building, and selling, well below the level necessary to even keep up with household formation," he said in an email.
But the immediate future is of concern to national homebuilders as the traditional spring selling season kicks off.
Lennar and KB Home, two of the largest U.S. homebuilders, have reported sluggish demand recently. Buyers are slow to make decisions, citing ongoing affordability challenges, the companies said.
Miami-based Lennar said last week that its home prices were 1% lower than a year ago, while KB cited a 9% drop in sales. Both builders described Florida as a soft market requiring incentives and price reductions.
Meanwhile, the median sale price of new houses sold in February was $414,500, down from $427,400 in January and $420,900 in February 2024. The median means half the homes sold for more and half for less.
The National Association of Home Builders trade group defines a new home sale as when a buyer signs a contract or a builder accepts a deposit. The home can be in any stage of construction, from not started to complete.
