Sales of new homes unexpectedly rose in December, a good sign for the economy.
New home sales in December increased from the month before, rising 2.3% last month to a seasonally adjusted annual rate of 616,000, according to a report Thursday from the Census Bureau. The encouraging reading follows recent declines in mortgage rates, which could be spurring more home purchases.
MORTGAGE DEMAND RISES 7% AS RATES FALL IN SIGN OF LIFE FOR HOUSING
While the news is a bit of a bright spot, sales are still down by a large margin from the peaks notched in 2020 amid the Federal Reserve’s decision to slash interest rates to near-zero levels. The housing market is still in what most economists characterize as a recession, and there continues to be fear that the downturn is a harbinger for a broader economywide recession.
“New home sales continue to hold up better than expected given the erosion in homebuying affordability that has occurred through much of 2022. We do expect new home sales to remain under pressure through the first half of this year, but recent declines in mortgage rates, and incentives offered by homebuilders should prevent too steep of a drop,” said economists with Oxford Economics.
The median sales price for a new home was $442,100 in December, an increase from the month before.
The news comes after sales of existing homes fell 1.5% in December, a sixth straight month of declines, according to a report last week from the National Association of Realtors. Existing home sales are down a hefty 34% from a year ago. It was also the worst December since the financial crisis, and sales were only 7.2% above the record low for December in 2008.
In one positive for the housing market, mortgage demand last week was up 7% on a seasonally adjusted basis, according to data released on Wednesday by the Mortgage Bankers Association. Refinancing applications were also up 15% as consumers took advantage of declining mortgage rates.
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As of Wednesday, the average rate on a 30-year fixed-rate mortgage was 6.15%, down from its peak of over 7% in October and into November, according to Freddie Mac. The rate on an average 15-year fixed-rate mortgage was 5.28%. The current level of mortgage rates is still much higher than the ultra-low levels that were recorded during a housing boom in the pandemic’s wake.
The elevated mortgage rates are a direct result of the Fed raising its interest rate target several times last year. The central bank is expected to hike rates once again at the end of the month, although it appears poised to begin stepping away from tightening at some point this year as inflation trends down.