Sales of newly built single-family homes in the United States soared in March, despite mortgage rates remaining elevated throughout the month. According to government figures released Tuesday, new home sales, which account for about 14% of the U.S. home sales market, jumped 8.8% last month to a seasonally adjusted annual rate of 693,000, the highest level since September. This figure trounced the 670,000 rate projected by economists, according to a FactSet poll, and marked the strongest monthly increase since December 2022.
The Commerce Department's Census Bureau reported that new home sales rose in all four regions last month, with the Northeast posting a robust 27.8% surge from February. Sales in the Midwest gained 5.3%, while the densely populated South saw a 7.7% increase. In the West, sales vaulted 8.6%.
Despite the strong performance in the new home sales sector, the broader U.S. housing market is expected to remain challenging for Americans. Mortgage rates are poised to stay well above 6% this year, economists say, as the Federal Reserve isn't expected to cut interest rates anytime soon. Additionally, a persistent undersupply of housing remains a key pressure point in the market, contributing to low affordability.
"Despite high prices and mortgage rates, homebuyers have limited options on the resale market, although resale inventories have improved some over the course of this year," said Gregg Logan, managing director at RCLCO Real Estate Consulting, in a note Tuesday.
The housing market began the year with some momentum as home sales surged, homebuilder sentiment perked up, and inventory levels climbed. However, this momentum seems to have fizzled out in recent weeks. Existing home sales, which make up the vast majority of the housing market, fell 4.3% in March to a seasonally adjusted annual rate of 4.19 million, the sharpest drop in more than a year, according to the National Association of Realtors.
Moreover, residential construction of single-family homes also fell in March, declining 12.4% to a seasonally adjusted annual rate of 1.022 million units, as reported by the Commerce Department. Building permits for future construction tumbled 3.7% in March to a five-month low.
"April's flat reading suggests potential for demand growth is there, but buyers are hesitating until they can better gauge where interest rates are headed," said Robert Dietz, chief economist at the National Association of Home Builders (NAHB).
Data from the NAHB showed that 22% of builders cut home prices in April, down from 24% in March, while the share of builders who offered a sales incentive edged lower to 57% in April from 60% in March. Sentiment among homebuilders in America held steady in April, according to the NAHB.
"The willingness of the major homebuilders to utilize incentives such as price reductions, mortgage rate buy-downs and paying buyers' closing costs continue to support a healthy pace of new home sales," Logan added.
