New home sales saw a significant increase of 4% in 2023, defying the obstacles of high mortgage rates and limited supply that have impacted the broader housing market.
According to Census data released on Thursday, new homes sold at a seasonally adjusted annual rate of 664,000 in December, marking an 8% rise from the upwardly revised rate of 615,000 in November. Economists had predicted sales to reach a seasonally adjusted annual rate of 645,000, as reported by FactSet.
The data reflects the culmination of an extraordinary year for the housing market. The National Association of Realtors revealed that sales of previously owned homes, which account for the majority of housing transactions, experienced a 19% decline to 4.09 million. This figure represents the lowest annual total in nearly three decades. The drop in sales was primarily influenced by escalating mortgage rates and a scarcity of available properties.
In contrast, sales of new homes showed expansion. The Census data reveals that 668,000 contracts were signed to purchase new homes in 2023, indicating a 4.2% increase from the previous year.
Builders were not impervious to the challenges prevalent in the wider housing market. However, they managed to sell homes by leveraging incentives such as mortgage rate buydowns. A survey conducted by the National Association of Home Builders in January found that 62% of builders offered sales incentives. This trend, observed throughout 2023, has persisted into the new year. While these incentives can stimulate sales, they also exert pressure on profit margins.
Looking ahead, the outlook for the housing market appears promising in 2024. Fannie Mae's latest forecast predicts a decline in mortgage rates to below 6% by the end of the year.