A new surge in home sales in December

Sales of new single-family homes increased 8% in December and 4.4% year-over-year across the US. In the South, new home sales rose 5.2%.

Sales of newly constructed single-family homes rose in December, beating expectations stemming from lower mortgage rates and a lack of inventory.

New home purchases rose 8.0% to a seasonally adjusted annual rate of 664,000 after an upward revision to November data, according to data recently released by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The rate of new home sales in December increased by 4.4% year over year.

An estimated 668,000 new homes were sold in 2023, up 4.2% from the 2022 figure of 641,000.

Regionally, on a year-over-year basis, new home sales rose in all four regions: up 3.5% in the Northeast, 3.6% in the Midwest, 5.2% in the South and 2.1% in the West.

"The solid new home sales rate in December was fueled by a lack of existing inventory in the resale market and a drop in interest rates," said Alicia Huey, president of the National Association of Home Builders (NAHB) and a Birmingham, Alabama-based custom home builder. "The increase in sales is in line with construction surveys Our latest, which show a considerable increase in future sales expectations due to the drop in mortgage rates."

The sale of a new home occurs when a sales contract is signed or a deposit is received. The house can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the December reading of 664,000 units is the number of homes that would be sold if this pace continued over the next 12 months.

The new inventory of single-family homes in December remained high at 453,000, a 0.4% increase compared to a year earlier. This represents 8.2 months of supply at the current construction rate. An index near a 6-month supply is considered balanced. Inventory completed and ready for occupancy, 88,000 homes in December, increased by 22.2% compared to last year. However, this type of inventory remains only 19% of the total inventory.

The median sales price of new homes in December was $413,200, down 3.0% from November, and down 13.8% from a year ago.

"New home sales ended the year at a record high largely thanks to lower interest rates and a decline in existing home sales," said Danushka Nanaikera-Skillington, NAHB assistant vice president for forecasting and analysis. "And while interest rates are moderating is a promising sign for new home sales in the coming year, long-term issues such as a shortage of buildable lots, a shortage of skilled labor and excessive regulations will continue to pose challenges to builders."