New Home Sales Rose 7.2% in January From December

New home sales rose 7.2% in January from the previous month, thanks to a combination of declining mortgage rates and home prices, alongside homebuilder’s readiness to offer sales incentives. 

Sales totaled 670,000 in January, according to data released by the Department of Housing and Urban Development and the Census Bureau. While the increase was a sign of life for new home sales after a slow year, they were still down 19.4% from the same month a year earlier.

Sales incentives were offered by 57% of home builders, including mortgage rate buy-downs and price reductions, according to Alicia Huey, chairman of the board at the National Association of Home Builders.

“Buyer incentives, along with stabilizing mortgage rates during the month of January, increased the pace of new home sales for the month,” Huey said. “However, in a sign of current market weakness, sales are down 19.4% compared to a year ago.” 

Rising mortgage rates are still a cause for concern, according to NAHB.

“Even though new home sales edged higher in January, the recent uptick in mortgage rates would imply continued weakness in the coming months,” said Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis. “In terms of affordability, the median price is down for the third straight month and is down compared to a year ago.”

The median sales price for new single-family homes was $427,000, down 8.2% from December. By region, the number of sales slid 19.4% in the Northeast, matching the overall drop; 6.9% in the Midwest; and 7.3% in the West. The South was the only region where sales rose, jumping 17.1%. 

At the end of January, 439,000 new homes were still for sale, according to HUD and Census data. Completed, ready-to-occupy single family home inventory is up 115% from a year ago with 73,000 homes in January, although that inventory type comprises only 17% of total inventory. 

As sales rise, home builders are more confident about the market, according to the NAHB/ Wells Fargo Housing Index. Home builder confidence in the single-family market rose 7 points in February to 42, the highest since September.  While new home sales make up only about 10% of the market, it's an important piece of the puzzle, because the U.S. has a housing shortage of more than 5 million homes, according to the National Association of Realtors.

Sales of existing homes fell in January for the 12th consecutive month, to their lowest level since October 2010. Economists were predicting the number to spike up, not to keep falling. Homeowners are reluctant to sell because they would have to borrow at a higher mortgage rate to buy another home.