The median price for a new home in January is lower than it was a year ago, marking the first annual decline since the pandemic.
The median sales price for a new home was $427,500 in January, a decrease from the month before — and 0.7% lower than in January 2022. That marks the first such annual decrease since August 2020. The decline could be a sign that home affordability could improve after prices soared in the wake of the pandemic and mortgages became far more expensive as the Federal Reserve rose interest rates.
BIDEN TO LOWER FHA PREMIUMS IN BID TO LOWER COSTS FOR HOMEBUYERS
New home sales in January increased from the month before, rising 7.2% last month to a seasonally adjusted annual rate of 670,000, according to a report Friday from the Census Bureau. The encouraging reading follows recent declines in mortgage rates, which could be spurring more home purchases.
While the news is a bright spot for the flagging housing market, sales are still down by a large margin from the peaks notched in 2020 amid the Fed'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 homes sales found support from a brief decline in mortgage rates and a large drop in median house prices in January,” economists from Oxford Economics said. "However, with financial markets pricing in a more hawkish Fed, mortgage rates have since rebounded, rising to levels from last November."
“Higher rates will put renewed pressure on homebuying affordability and home sales in the first half of the year, though lower prices and incentives offered by homebuilders should prevent too steep of a drop,” they added.
As of Wednesday, the average rate on a 30-year fixed-rate mortgage was 6.5%, down from its peak of over 7% in October and into November, according to Freddie Mac. But that number is up from a recent low of just about 6.1% registered in late January and early February. The rate on an average 15-year fixed-rate mortgage was 5.76%.
The current level of mortgage rates is still much higher than just a year ago when rates were below 4%, driving a rash of homebuying activity.
The elevated mortgage rates are a direct result of the Fed raising its interest rate target several times over the past year. The central bank hiked rates once again at the start of the month and is set to conduct another increase in March, although by what degree is still yet to be seen.
Newer data, though, shows that the recent uptick in mortgage rates is beginning to dissuade buyers once again. Mortgage loan applications last week fell to the lowest level since 1995 as mortgage rates rose, the Mortgage Bankers Association reported Wednesday.
The MBA’s seasonally adjusted Purchase Index, which gauges mortgage applications for single-family homes, plunged 18% from a week ago, while the unadjusted index fell 4% from a week ago and 41% from this time last year.
Earlier this week, it was announced that sales of existing homes have fallen for twelve straight months, with sales in January down a notable 36.9% from the year before. Existing-home sales fell by 0.7% in January to a seasonally adjusted annual rate of 4 million, according to a report by the National Association of Realtors released Tuesday. The median existing-home price last month was $359,000, an increase of 1.3% from the year before.
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Danushka Nanayakkara-Skillington, the National Association of Home Builder’s assistant vice president for forecasting and analysis, noted on Friday that while new home sales ticked up in January, it is not likely that will be the case when the next new home sales data are released.
“Even though new home sales edged higher in January, the recent uptick in mortgage rates would imply continued weakness in the coming months,” said Nanayakkara-Skillington. “In terms of affordability, the median price is down for the third straight month and is down compared to a year ago.”