New US Home Sales Drop By More Than 10 Percent

While sales are expected to rebound this month, high mortgage rates will limit the upside potential for buying activity in 2025, said an economist.

A "For Sale" sign in front of a home in Arlington, Va., on Aug. 22, 2023. Andrew Caballero-Reynolds/AFP via Getty Images

The sales of new homes in the United States fell by double digits in January on a monthly basis amid an increase in property prices and persistently-high mortgage rates hovering around the 7 percent level, according to latest data from the U.S. Census Bureau.

The bureau said January sales of new single-family houses declined by 10.5 percent from December at a seasonally adjusted annual rate of 657,000 units.

This was the lowest level in three months and is the second-lowest sales number since March last year when 683,000 units were sold, the bureau said in a Feb. 26 statement. Region-wise, sales in Northeast, Midwest, and South fell by double digits month-over-month, with the West registering a gain.

The dip in new home sales came as the average weekly rate on a 30-year fixed-rate mortgage remained at or above 6.91 percent in January, even breaching the 7 percent level in one instance.

Meanwhile, the median sales price of new homes increased last month, jumping from $415,000 in December 2024 to $446,300 in January.

Homes in the price range of $300,000 to $399,999 saw the biggest dip in sales last month in terms of percentage points. These properties made up 24 percent of all new homes sold in January, declining from 29 percent in December.

In contrast, homes priced between $500,000 and $599,999 gained the most, rising by 4 percentage points from 12 percent in December to 16 percent in January.

Bradley Saunders, North America economist at macroeconomic analysis company Capital Economics, said the large decline in new home sales last month was to be “expected,” citing disruption from “unseasonably severe winter weather.”

He forecast sales to rebound in February while cautioning that the upside for buying activity this year is expected to be limited due to high mortgage rates.

At the end of January, there were 495,000 new homes available for sale in inventory, representing a supply of nine months at the current pace of sales.

Joel Berner, senior economist at real estate listings website Realtor, said that while January was a challenging month for both buyers and sellers compared to the previous months, the new home segment “is still an especially attractive one compared to the existing home segment.”

“Homes are easier to shop for with more months of supply on the market, prices remain competitive with the resale market, and purchasing a new build offers more customizability and a lower cost of ownership than existing homes.”

Smaller Home Interest Surge

According to the National Association of Home Builders (NAHB), affordability concerns are pushing home buyers into the market for smaller, more personalized houses.

Buyers’ interest in median home size dropped to 2,150 square feet in 2024 from 2,200 in the previous year, which is the lowest in 15 years.

Townhomes made up a “record” 17 percent of the single-family market last year compared to 10 percent in 2009.

Rose Quint, NAHB assistant vice president of survey research, attributed the increased interest in townhomes to these properties being more affordable at a time when labor, material, and lot prices are increasing.

“Builders are increasing overall living space by tacking on more porches and patios, with 68 percent and 64 percent of new homes, respectively, incorporating these features,” NAHB said.

“In addition to building smaller homes, they are also trying to address affordability concerns by offering sales incentives (64 percent) and cutting home prices (33 percent).”

Meanwhile, home price growth slowed down for the four weeks ending Feb. 23, registering the smallest gain since September, according to a report by real estate brokerage Redfin.

“My advice to buyers: If you’re thinking of purchasing a home in the next six months, don’t wait until the flowers start blooming,” said Alison Williams, a Redfin Premier agent in Sacramento, California. “The market will heat up as we get closer to spring.”

“Now is the time to potentially negotiate down the price of a home, save money on closing costs or get the sellers to cover issues uncovered in the inspection. There are bidding wars for relatively affordable homes, under $400,000 or so, and for upscale, fully renovated homes in popular neighborhoods.”