US new home sales surged in March despite rising mortgage rates

US new home sales surged in March despite rising mortgage rates

Sales of newly built single-family homes in the United States surged in March even as mortgage rates remained raised that month.

New home sales, which make up about 10% of the market, jumped 8.8% last month to a seasonally adjusted annual rate of 693,000, according to government figures released Tuesday. That beat the rate of 670,000 projected by economists, according to a FactSet poll, and was the strongest monthly increase since December 2022.

New home sales rose across the country last month, rising the most in the Northeast region by 27.8% from February.

Meanwhile, sales of existing homes, which make up the bulk of the housing market, fell 4.3% in March to a seasonally adjusted annual rate of 4.19 million, the sharpest decline in more than a year, the National Association of Realtors reported last week.

The housing market is poised to remain tough
The broader US housing market is expected to remain tough for Americans, with mortgage rates expected to remain above 6% this year, economists say. The Federal Reserve does not directly set mortgage rates, but its actions affect them, and the central bank is not expected to cut interest rates anytime soon. The ongoing shortage of housing supply also remains a major pressure point in the market, contributing to low affordability. Housing inventory has improved in recent months, but supply is still not meeting demand. That means homebuyers have limited options as some homeowners who locked in low mortgage rates before the Fed starts raising rates in 2022 have largely opted not to sell their homes.

“Despite high prices and mortgage rates, homebuyers have limited options in the resale market, although resale inventory has improved over the course of the year,” Gregg Logan, managing director at RCLCO Real Estate Consulting, said in a note Tuesday.

“The willingness of major homebuilders to use incentives such as price reductions, buying down mortgage rates and paying buyers’ closing costs continues to support a healthy rate of new home sales,” he added.

Stalled housing market recovery?
The housing market started the year with some momentum as home sales surged, homebuilder sentiment rose and inventory levels rose, but now it appears to have fizzled. In addition to the March drop in existing home sales, residential construction of single-family homes also fell in the month, declining 12.4% to a seasonally adjusted annual rate of 1.022 million units, according to Commerce Department data released earlier this month. Residential construction fell across the country except in the West. Meanwhile, building permits for future construction fell 3.7% in March to a five-month low.

Data from the National Association of Home Builders showed that 22% of builders cut home prices in April, down from 24% in March. Meanwhile, the share of builders offering sales incentives decreased to 57% in April from 60% in March. Sentiment among American homebuilders remained stable in April, the NAHB said.

“April’s flat reading shows potential demand growth is there, but buyers are hesitant until they can better gauge where interest rates are headed,” NAHB chief economist Robert Dietz said in a statement.