Sales of new homes in the Northeast and the Midwest plunged in February, helping to bring down the market overall across the country, as elevated mortgage rates dissuaded buyers from purchasing property.
The Northeast registered a 31.5 percent nosedive in single-family home sales, while the Midwest saw a decline of 2.4 percent, contributing to a 0.3 percent of drop at the national level of 662,000, according to data from the U.S. Census Bureau and the Department of Housing and Urban Development. Bloomberg economists had forecast sales of 677,000. The South had more encouraging data, registering a 3.7 percent increase, while the West also saw positive numbers, up 2.3 percent for the month.
Analysts blamed high mortgage rates for the disappointing numbers.
"Rising mortgage rates subdued activity in February," Yelena Maleyev, KPMG's senior economist, said in a note shared with Newsweek.
Mortgage rates have been elevated, hitting a peak of 8 percent in the fall. Expectations that the Federal Reserve, which had raised borrowing costs to battle inflation, will cut rates had helped bring down the cost of home loans.
But inflation has stayed higher than the central bank's target of 2 percent, leading investors to believe that borrowing costs could stay higher for longer. This dynamic has in turn contributed to a jump in mortgage rates in recent weeks. On Thursday, Freddie Mac pointed out that as of March 21, the 30-year fixed rate rose to nearly 6.9 percent, up from the prior week.
While sales softened in February, prices—another factor that has discouraged buyers from purchasing property—also declined to their lowest since June 2021, Maleyev pointed out. The median sale price of a single-family home dropped by more than $14,000 to about $400,000, according to government data.
Read more: How to Buy a House With Bad Credit
The fall in new home sales is a reverse of a recent trend in the existing homes market. That segment saw sales jump 9.5 percent last month despite the rise in mortgage rates, which for a while had dissuaded sellers from putting their homes on the market, reluctant to give up the low loan rates they secured in the past.
"Sales were spurred by a rise in inventory, as 1.07 million homes were available for sale at the end of the month," Maleyev said. "The rise in inventories was not enough to offset the upward pressure on existing home values; the median sales price rose to $384,500, the highest since November 2023."
Part of the reason that the existing homes market rose was that rates had fallen enough for sellers to start to feel comfortable listing their homes again, according to Maleyev.
"The surge in the resale market can be attributed to falling mortgage rates in December and January, hitting a low of 6.6 percent in January," she said.
But the recent upward move in borrowing costs in the mortgage market could suppress activity going forward.
"Mortgage rates have risen to nearly 6.9 percent in mid-March, which will hamper activity in the next few months," Maleyev said.
Read more: Compare Top Mortgage Lenders
Maleyev expects rates to fall by the end of the year. She forecasts mortgage rates to decline to 6.5 percent in the next quarter and drop to 6.3 percent by the third quarter.
The drop in rates could again spark the new homes market, according to Nancy Vanden Houten, lead U.S. economist at Oxford Economics.
"We expect the pace of new home sales to trend higher over the balance of 2024 with sales supported by lower mortgage rates, increased supply, and a relative scarcity of existing homes for sale," she said in a note shared with Newsweek.
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
About the writer
Omar Mohammed is a Newsweek reporter based in the Greater Boston area. His focus is reporting on the Economy and ... Read more
To read how Newsweek uses AI as a newsroom tool, Click here.
