New-Home Sales Pace Picks Up, Price Plummets in March

What happened this month

New-home sales rebounded in February and March from an especially weak January, reaching a seasonally adjusted annual rate of 682,000 in March, up 3.3% year over year. The pace of new-home sales has returned closer to its regular level in recent years. The most notable result from the February and March data release is the median sales price of new homes across the country: $387,400 for a newly built home is the lowest median sales price released by the U.S. Census Bureau since 2021 and a 6.2% retreat from March of last year.

Builders, facing compressed margins from increasing costs and soft buyer demand, are choosing to stay afloat on volume. They are slashing prices to attract buyers and move through their inventory backlog, which has led to a median new-home sales price that is more than $20,000 lower than the median existing-home sales price for March. This boosted pace of sales has slightly decreased the months of supply of new homes for sale, down to 8.5 months from 9.2 last March.

Regionally, sales activity picked up everywhere but in the West (-12.7%) on a year-over-year basis. The Midwest (+11.8% YoY) led the way, followed by the South (+8.1% YoY) and Northeast (+3.8% YoY). The regional mix of sales may be contributing to the price retreat, as the South and Midwest generally have lower prices than the Northeast and West. The soft sales activity out West will not inspire confidence in Western builders who are already slowing their new-construction activity.

Breakdown by stage of construction

The number of completed homes for sale continues to exceed the number of unstarted homes. Builders still have fully built inventory they are trying to sell, though many have decided to cut back on spec building in favor of receiving orders for more to-be-built homes. If builders continue to be forced to offer such sizable price reductions, expect fewer spec homes to hit the market and for builders to sell more pre-construction homes instead.

What does this mean for buyers and builders?

It is a great time to find a deal on a new build. Not only are new-home sales prices now actually lower than existing homes, but builders are still offering incentives like cash at closing, free home upgrades, and mortgage rate buydowns that make the savings on buying new construction even greater. Builders are in a tough position, being forced to take high volumes of low prices, but they will not do this forever. Buyers in the new-construction market right now can take advantage of some serious purchasing power.