New-home sales exceed forecast on drop in mortgage rates

Sales of new homes in the U.S. exceeded forecasts in December as a drop in mortgage rates enticed prospective buyers.

Purchases of new single-family homes increased 8% to a 664,000 annual pace last month, after an upward revision to November's figure, government data showed Thursday. The median forecast in a Bloomberg survey of economists called for a rate of 649,000.

The figures illustrate some momentum heading into 2024, underscored by the first pickup in annual sales in three years. Mortgage rates dropped by more than a full percentage point toward the end of last year, and once the Federal Reserve starts cutting interest rates, that should give the sector an even bigger boost.

The median sales price of a new home dropped for a fourth month to $413,200 in December from a year ago as more homes became available for sale. The supply of new homes climbed to 453,000 in December, the most in more than a year, according to the report from the Census Bureau and the Department of Housing and Urban Development.

Unlike the resale market, where existing homeowners are reluctant to list their properties, builders have been more optimistic and applying for more permits recently given the easing in borrowing costs. To help drive buyer interest, nearly two thirds of homebuilders said they provided some form of an incentive in January, according to data from the National Association of Home Builders and Wells Fargo.

Regional Breakdown

By region, new home sales rose in three of four regions. In the Midwest, they advanced to the highest level since July. In the South — the country's largest region — purchases snapped back after tumbling in November.

New-home sales are considered a more timely gauge than purchases of previously-owned homes, which are calculated when contracts close. Those fell 1% in December from a month earlier, capping the worst year for sales in almost three decades. 

The data are volatile, however. The report showed 90% confidence that the change in sales ranged from a 16.2% decline to a 32.2% gain.

A report earlier Thursday showed the US economy's fourth-quarter growth trounced forecasts, capping a surprisingly strong year that defied recession calls.