Homebuyers Flood the Market As Prices Drop

Sales of new single-family homes soared by 8 percent in December compared with the previous month and rose by more than 4 percent for the year, government data showed on Thursday, as prices dipped to what analysts said were their lowest level in two years.

The total number of homes sold in December came in at an estimated 664,000, according to the U.S. Census Bureau and the Department of Housing and Urban Development. In 2023, an estimated 668,000 new homes were sold at a 4.2 percent jump compared with the 2022 numbers of 641,000.

The median sales price declined slightly to $413,200 in December, the data showed, compared with last month's sticker price of $426,000. The average price, however, ticked up slightly to $487,300 from $485,500, the data showed.

The housing market has been struggling amid elevated prices and record-level mortgage rates which at one point had hit the highest level since the turn of the century. But over the last few weeks rates have declined to under 7 percent from their historic highs of 8 percent in October, encouraging buyers to enter the market and purchase homes.

The rebound in home sales for the year was in spite of mortgage rate increases, analysts said, helped by builders offering inducements, such as rate buydowns, to attract buyers.

"Sales in 2023 were supported by home builder incentives and a lack of supply in the existing home market," Nancy Vanden Houten, lead U.S. Economist at Oxford Economics, said in a note shared with Newsweek. "We expect these factors will support sales in 2024."

Vanden Houten added that median prices had fallen to their lowest level in two years, partly due to builders trying to entice lower-income buyers.

"The sizes of new homes have been trending lower as builders look to attract buyers with more moderate incomes," she said. "That trend may put some modest downward pressure on home prices in the months ahead."

Homes priced at under $400,000 made up 43 percent of all houses sold last year, said Yelena Maleyev, a senior economist at KPMG.

"Builders have pivoted to building smaller homes and offering more discounts and concessions, such as mortgage rate buydowns, to bring in buyers sidelined by rising mortgage rates," Maleyev said in a note shared with Newsweek.

She added: "Sales were strongest in the Northeast (the smallest housing market) and the South (the largest housing market). Only the West saw sales decline during the month."

Mortgage rates ticked up last week, according to lenders, but still remain at under 7 percent. If this trend continues, it could fuel more sales in 2024.

"If mortgage rates remain below 7 percent and fall further, sidelined first-time buyers and locked-in owners looking to trade-up will fuel demand this year," Maleyev said.

Update 1/25/24, 1:10 p.m. ET: This article was updated with additional comments and background information.