Increased New Home Sales: Signs of a Warming Real Estate Market?

Existing home sales have steadily fallen since 2023, hitting their lowest levels ever reported by the National Association of Realtors (NAR). Month-on-month existing home sales saw a slight boost (an increase of 3.1%), yet were down 1.7% year-over-year compared with January 2023.

As it currently stands, affordability issues and lack of inventory (particularly critical in certain metro areas) remain at an all-time low.

With interest rates so high, homeowners are unlikely to sell anytime soon and inventory levels likely won’t see significant improvements either.

Real estate market indicators point towards positive changes within the new home sales segment.

As per Census Bureau figures, January’s 1.5% monthly increase in new home sales may not seem impressive at first glance; instead, it fell below market expectations by selling only 660,000 units instead of the anticipated 680,000 total. Yet when we dig further into regional and annual figures we see something remarkable happen.

According to a Census Bureau report, monthly new home sales increased dramatically in both the Northeast (72% growth) and West (38%), as well as Midwest (7.7%), with only South (15.6%) showing any discernible decreases. Meanwhile all regions except for Western where existing home sales declined (2.8% increase).

Monthly fluctuations don’t provide a reliable picture of longer-term trends; however, year-over-year sales figures provide us with an accurate depiction. Annual new home sales were up in all regions except Northeast; overall nationwide new home sales rose 1.8% year over year while existing home sales dropped by 1.7% annually.

Normal numbers don’t indicate any great significance here; however, 2023 proved an extraordinary year in terms of housing market volatility; buyers faced multiple hurdles that necessitated declining existing sales figures in tandem. The decline is fitting given these circumstances.

As regards new home sales, an increase is something to keep an eye on. Buyers in many parts of the country seem intent on purchasing new homes simply because there are more of them available; this despite their higher median sales prices (PS420,700 vs $379,100 respectively).

New Home Sales Are Becoming More Common
While new homes may not be more desirable than existing properties (they certainly aren’t more affordable), some people actively search for one. As of the second quarter of 2023, around 25% of buyers reported wanting new construction homes as desired properties–this number far outstripping those who actually end up purchasing one according to NAR’s Profile of Home Buyers and Sellers which found only 13% purchased one as opposed to 87% who purchased an existing property instead.

It may take time, but buyers have begun shifting toward purchasing new homes in increasing numbers; market shares for them now exceed the 10% threshold. It may be that many are being forced into this market sector unintentionally as there currently exists an 8.3-month supply of new builds versus three months for existing ones.

But here’s the thing: This is now reality for the housing market. Existing housing inventory won’t “unfreeze” itself anytime soon – or even this year; therefore, the market must find other ways of unfreezing itself. Demand for homes remains strong, evidenced by an increase in new home sales even in an environment marked by high home prices and rates – an indication of buyers willing to go any lengths necessary in order to finally own one of their own.

If you were still uncertain that new home construction was worth investing in before now, take this as evidence: Warren Buffett is already making such investments–and we now have data that shows its almost certain growth over both short and long term periods.