New home sales cool, but still up nearly 6% annually 

Rising mortgage rates took some momentum out of new home sales in February, according to the latest data from the U.S. Census Bureau.

A look at the numbers: Sales of newly built homes came in at a seasonally adjusted annual rate of 662,000 in February. That's slightly lower than January — a 0.3% dip — but up 5.9% from a year ago.

The slowdown in sales month-over-month kept inventory elevated. The supply of new homes for sale was estimated at 8.4 months in February compared with 2.9 months supply for existing homes.

The median sale price for new homes was $400,500 last month, down 3.5% from January and down 7.6% compared to a year ago. The price drop is a result of two main factors, said Robert Dietz, chief economist at the National Association of Homebuilders: A quarter of builders have reduced prices, and builders are constructing slightly smaller homes.

What economists are saying: Despite the slowdown between January and February, new construction continues to account for an outsized share of housing inventory, said Lisa Sturtevant, chief economist at Bright MLS — though she noted that existing home supply is expected to rise.

"Inventory of existing homes should loosen up some this spring, but the new home market will remain strong," Sturtevant said.

A balanced market for new homes is typically a six-month supply, but Dietz said it may stay higher if existing home inventory remains low.

"As interest rates subside over the course of 2024, additional home buyers will be priced into the market and new construction will be needed to meet this demand," Dietz said. "Nonetheless, as existing home inventory is expected to rise this year, watching new home inventory will be key during the second half of this year."

Overall home prices are up

While median new home prices have fallen, overall home prices are still climbing, picking up momentum at the beginning of the year.

National home prices were up 6% in January compared to a year ago, according to the latest data from the S&P CoreLogic Case-Shiller Index. That's the biggest annual rate change since 2022, said Brian Luke of S&P Dow Jones Indices. Luke also noted it's been a fairly broad-based rise across the U.S.

"While there is a large disparity between leaders such as San Diego versus laggards such as with Portland, the broad market performance is tightly bunched up," Luke said. "Homeowners most likely saw healthy gains in the last year, no matter what city you were in, or if it was in an expensive or inexpensive neighborhood."

San Diego experienced a whopping 11.2% increase in home prices in the past year, followed by Detroit at 8.2%. Portland was the lowest among the 20 metro areas studied, with a 0.9% annual increase. Most of the other cities in the index were in the 6-8% price appreciation range.

The combination of high prices, elevated mortgage rates and relatively low inventory will continue to make it tough for buyers this spring.

"We are unlikely to see any significant price drops in most markets because demand remains strong," Sturtevant said. "A sharp economic downturn or spike in mortgage rates — neither of which are likely — are the only factors that could dramatically reduce the number of home buyers in the market."