New home sales plunged in November

By CNN Newsource

Published December 22, 2023 7:06 AM

By Anna Bahney, CNN

Washington, DC (CNN) — New home sales in the US dropped in November as mortgage rates slowly retreated from their highest levels this year.

Sales of newly constructed homes dropped 12.2% in November to a seasonally adjusted annual rate of 590,000 from a revised rate of 672,000 in October, according to a joint report from the US Department of Housing and Urban Development and the Census Bureau. Sales were up just 1.4% from a year ago.

This was well below analysts’ expectations of an annualized sales pace of 685,000 and the steepest decline since April 2022. The sales pace for new homes hasn’t been this low since November 2022 when rates were rising.

Affordability challenges, particularly with high mortgage rates, likely kept buyers on the sidelines. Typical mortgage rates reached their highest levels in 23 years – hitting 7.79% for a 30-year, fixed-rate loan – and have been coming down since.

Newly constructed homes have been a welcome alternative for buyers struggling with a dearth of supply in the existing home market. Sales of existing homes are on pace to be at among the lowest levels in 30 years. These have been trending down since February, except for a surprising uptick in November.

“Homebuilders are on pace to have one of their most successful years, with total new home sales this year expected to end up nearly 10% higher than last year,” said Lisa Sturtevant, chief economist of Bright Multiple Listing Service, which serves six states on the Atlantic seaboard and Washington, DC. “By contrast, sales of existing homes are down by nearly 20% year-over-year.”

Affordability challenges remain

Even as sales dropped in November, the median price of a new construction home rose that month to $434,700 from $409,300 in October.

While new homes provide some relief to tight inventory in the existing home market, they are not always as affordable.

“While new construction has provided a welcome addition to the very low inventory, new homes tend to be priced higher than existing homes,” said Sturtevant.

This year, through November, less than one-half of one percent – 0.5% – of new homes were sold for below $200,000. While nearly a third – 31.4% – of sales were priced at $500,000 or higher, according to an analysis by Sturtevant.

But there is some evidence that builders are building smaller and slightly more affordable homes in some markets, she added. The share of homes priced at $500,00 or higher has come down from last year when it was 42%.

“Homebuilders know that there is strong demand for homeownership at lower price points, but it is challenging to build more affordable homes,” she said. “High costs of land, materials, and labor all drive higher new home prices.”

While the median price of a new home sold in November was 6% lower than a year ago, it is still significantly higher than the median price of existing homes, which was $391,800 in November.

At a the prevailing 6.5% interest rate, a family would need an income of nearly $130,000 to be able to afford to purchase the median-priced new home in the U.S., according to calculations from Sturtevant. The median household income in the U.S. is about $75,000.