New Positive Home Sales Numbers Driven By Upper-End Buyers, But New Home Construction Continues to Lag

Finding good news on the residential home front in the U.S. is a challenge at best. 

Still, according to the National Association of Realtors (NAR), November saw a surprising jump in home sales. Here’s the caveat: The jump was fueled by buyers with a lot of money. 

The key to the encouraging numbers is less optimistic for first-time buyers, who have been knocked out of the market by higher interest rates. NAR reported that the increase in market activity seemed confined to upper-end buyers who had cash or available equity to close home deals. The numbers show that 62% of new home sales in November were properties priced above $400,000, with only 37% priced below $300,000. First-time buyers continue to find the new home market out of their reach, with the median home price nearing $500,000. 

Also helping ignite the November jump were 30-year mortgages, which dropped below 7%, to 6.5%, for the first time in months and builder discounts, which encouraged buyers to seek updated floor plans, more technology and home warranties.

One thing the market has shed is bidding wars as inventory continues to climb, with homes sitting on the market for extended periods. That condition was praised by Greg McBride, the chief financial analyst at Bankrate.com, who told The New York Times, “It’s a much better time to buy now than it was six months ago. You’re not competing with 44 other people in front of you online at the open house. You’re not competing with people putting in offers sight unseen. That was not a good environment.”

New Home Inventory Still Lacking 

The inventory of new homes continues to take a hit from inflation and high mortgage rates. According to the National Association of Home Builders (NAHB), the market index dropped for the 12th consecutive month to its lowest level since 2012. Still, there was a small light at the end of the tunnel with a positive outlook for the next six months. 

According to Freddie Mac, this downward trend is not a recent phenomenon, as in 2020 when the country was short 3.8 million housing units. Construction of single-family homes began increasing during the pandemic. But it came to a screeching halt in 2022, with housing starts down 16% in November from the same time a year ago. Building permits were down 22% during the same period, according to U.S. Census data.

Any future optimism is being driven partly by a drop in lumber prices to $400 per 1,000 board feet, a considerable decline from the $1,300 per 1,000 board feet recorded in March. The NAHB believes the combination of lower raw material costs plus flattening interest rates may give construction companies some breathing room while working through the existing pipeline of projects.

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