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Home»Real Estate»Why new home sales are disappointing, despite beating estimates
Real Estate

Why new home sales are disappointing, despite beating estimates

January 27, 2025No Comments2 Mins Read
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Census: New Home Sales: The latest estimates from the U.S. Census Bureau and the Department of Housing and Urban Development reveal that sales of new single-family houses in December 2024 reached a seasonally adjusted annual rate of 698,000. This represents a 3.6% increase from the revised November rate and a 6.7% increase from December 2023.

Upon analyzing the key data points, it is evident that while sales are not declining drastically as seen in 2022, they are also not experiencing substantial growth. Maintaining a steady level of sales, the most favorable results are observed when mortgage rates hover around 6%. Beneath the headline figures, there are underlying trends worth noting, including a negative revision of sales for the last three months.

For Sale Inventory and Months’ Supply: At the end of December, there were an estimated 494,000 new houses for sale, representing an 8.5-month supply at the current sales rate.

Although the monthly supply data decreased this month, it is crucial to note that there are currently 118,000 completed units available for sale, along with 268,000 homes under construction. Moreover, there is a record high of 108,000 homes that builders have yet to start constructing, all while mortgage rates remain above 7%.

Builder confidence, which forecasts the next six months, has experienced a significant decline recently. This does not bode well for a meaningful growth in housing permits.

Considering the increasing supply and high mortgage rates, construction labor may face risks in 2025. Not all builders have the margins to lower mortgage rates for home sales, leading to a cautious approach in the market.

chart visualization

Today’s home sales report may seem positive at first glance, but negative revisions and increased inventory point towards a challenging road ahead. Builder confidence has waned due to persistent mortgage rates above 7%.

A potential improvement could be seen with a decline in mortgage rates, ideally reaching 6%, which would benefit homebuilders. Lower rates could spur housing construction and permit issuance. However, concerns linger about rates climbing back to levels seen in the previous year.

While the Federal Reserve remains cautiously optimistic, a downturn in residential construction jobs often signals an impending recession. This scenario would not bode well for the U.S. as housing permits continue to lag behind, reflecting the current reality.

Beating disappointing Estimates Home sales
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