Sales of new U.S. single-family homes have shown unexpected growth as we move forward through January 2025, signaling renewed momentum within the housing market, according to data from the Commerce Department released on Monday. New home sales increased by 3.6% to a seasonally adjusted annual rate of 698,000 units as December 2024 drew to a close, beating economists' forecasts, which had anticipated sales at around 675,000 units.
This uptick follows the December rebound, reflecting a significant rise not only in new home sales but also in single-family housing starts and building permits, which reached their highest levels since early 2024. "New home sales in December wraps up a solid year for newbuild demand in an otherwise stagnant housing market," stated Thomas Ryan, North America economist at Capital Economics. Ryan adds expectations for continued increases this year, indicating the resilience of the new home market amid challenges posed by rising mortgage rates.
The analysis shows new home sales have outperformed sales of previously owned homes partly due to tighter inventories among existing houses. With demand for new homes also on the rise—6.7% higher year-over-year—builders are pivoting their strategies to remain competitive. The median price for these new builds stood at $427,000, up 2.1% from the previous year, with the pace of price increases stabilizing, primarily due to higher inventory levels.
The total inventory of new homes for sale surged to 494,000 units—marking the highest figure since December 2007. This increase included 268,000 homes under construction, 118,000 completed homes, and 108,000 homes not yet started. Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets, commented on this situation, stating, "Builders have managed to thin the pipeline of supply to a degree; the number of completed new homes on the market rose yet again." This inventory level indicates rising market dynamics as builders adjust to shifting demands.
While the North East and West regions saw significant spikes of 41.7% and 20.3% respectively in new home sales, the South and Midwest faced declines—2.1% and 3.3%. These variations showcase the geographical disparity impacting the housing recovery. Nevertheless, the overall trend points toward resilience, with homebuilders adopting strategies to appeal to buyers amid fluctuated financial conditions. D.R. Horton, the largest homebuilder, has reported success from implementing greater incentives, such as mortgage-rate buydowns to stimulate sales, maintaining relatively solid performance against the backdrop of falling sales for existing homes.
According to Wolf Richter for WOLF STREET, unsold inventory of completed new single-family homes has skyrocketed, with numbers surging by around 50% from previous years and reaching 124,000 homes available. The situation reflects builders' need to manage their assets prudently as they continuously construct more homes than they can sell. "They’re building smaller, less costly homes, and they’re cutting prices... to maintain sales volume and take share away from the resale market," said Richter. The report echoes the sentiments of other experts noting the need for adaptive strategies within the current housing environment.
With continued low mortgage rates and homeowners hesitant to sell at high prices, new homes have become more appealing options for buyers disillusioned by the resale market's exorbitant pricing. According to the Burns Homebuilder Survey, incentives on unsold new homes have reached up to 10% of the selling price, enhancing affordability, especially against high existing home prices. The first-time homebuyers and those aiming for downsizing have gained leverage, making it easier to enter the market.
Despite some pockets of resistance, such as homes situated within desirable school districts still attracting competition, the broader implication is clear: new homes are becoming increasingly competitive with existing homes. The data form specific cities showcases this shift; for example, the number of homes available for sale in several Australian cities increased significantly, leading to what is referred to as ‘buyer’s markets.’ CoreLogic research highlighted rising stock levels across major cities, enhancing buyers’ negotiating power.
Coming forward, the outlook for the housing market appears cautiously optimistic. Builders are learning to adjust their strategies about pricing and incentives based on prevailing market conditions. The expectation among analysts suggests new home sales could continue to gain traction, supported by stabilized price expectations, elevated inventory levels, and sustained demand. The emphasis remains on engaging buyer interest through affordability measures, which could be pivotal for the housing market's performance throughout the year.
The Federal Reserve maintains its interest rate policy to balance economic growth and inflation control. Observing these dynamics suggests the housing market has multiple layers of complexity to navigate, yet key indicators potentially indicate continued recovery and growth for new home sales—marking this sector as one to watch closely as 2025 progresses.