Sales of new homes in the Northeast and Midwest plummeted in February, leading to an overall drop in the housing market across the country. The Northeast experienced a 31.5 percent decline in single-family home sales, while the Midwest saw a 2.4 percent decrease. At the national level, there was a 0.3 percent drop to 662,000, lower than the forecasted 677,000. High mortgage rates are being blamed for the disappointing numbers, with rates hitting nearly 6.9 percent in March. The South and West regions saw more positive numbers, with a 3.7 percent and 2.3 percent increase in sales, respectively.
Mortgage rates have been elevated, reaching a peak of 8 percent in the fall. Expectations that the Federal Reserve would cut rates to combat inflation had temporarily brought down borrowing costs. However, with inflation remaining higher than the central bank’s target, investors are anticipating that rates may stay elevated for longer. This has led to a recent increase in mortgage rates, with the 30-year fixed rate rising to nearly 6.9 percent. Additionally, the median sale price of a single-family home dropped by over $14,000 to around $400,000 in February, which is the lowest since June 2021.
Despite the decline in new home sales, the existing homes market saw a 9.5 percent increase in sales last month, despite the rise in mortgage rates. This increase was driven by a rise in inventory, with 1.07 million homes available for sale at the end of the month. The surge in the resale market can be attributed to falling mortgage rates in December and January, which hit a low of 6.6 percent. However, the recent rise in borrowing costs in the mortgage market may suppress activity going forward. Analysts are expecting rates to fall by the end of the year, with forecasts predicting a decline to 6.5 percent in the next quarter and 6.3 percent by the third quarter.
Analysts believe that lower mortgage rates, increased supply, and a relative scarcity of existing homes for sale could support an uptrend in new home sales over the rest of 2024. The surge in existing home sales was partially due to the falling rates, which made sellers more comfortable about listing their properties again. However, the recent increase in mortgage rates could potentially hinder activity in the coming months. Despite the recent challenges in the housing market, there is hope that a decrease in rates later in the year could reignite interest in new home sales.
Overall, the housing market has experienced a mixed bag of results, with new home sales declining in some regions while existing home sales have seen an increase. The rise in borrowing costs has posed a challenge for potential buyers, leading to a drop in sales and prices in the new homes market. However, analysts remain optimistic that a potential decrease in rates later in the year could help boost sales and revitalize the housing sector. The coming months will be crucial in determining the trajectory of the housing market and whether the recent challenges can be overcome.
