By Aarthi Swaminathan
Expect new-home sales to remain flat or fall in the months ahead, economist says
Home builders saw a small increase in the pace of sales of newly built homes in February, but they remain worried about home buyers pulling back in the coming months – so they’re increasing incentives to keep buyers interested.
Sales of newly built homes in the U.S. rose slightly in February, boosted by a big jump in the Midwest. New-home sales rose 1.8% to an annual rate of 676,000, from a revised 664,000 the prior month, the Commerce Department reported.
The number, which is seasonally adjusted, refers to how many homes would be built over an entire year if builders continued at the same pace every month.
The new-home sales figure roughly matched expectations on Wall Street. The rate of new-home sales was pulled up by a 20.6% jump in February in the Midwest, as well as a 6.6% increase in the South.
But the data paint a far too optimistic portrait of the new-home market, one economist said. “The new home sales series is too volatile, too heavily revised, and comes with too wide a margin of error, to take a single month’s numbers seriously,” Oliver Allen, a senior U.S. economist at Pantheon Macroeconomics, wrote in a note.
He added that he believes the underlying trend for new-home sales is “flat-to-falling.”
That assessment was based in part on the fact that builders are growing increasingly concerned about their ability to sell homes.
Builders are reacting to a potential dip in demand by offering more deals.
The most recent sentiment read by the National Association of Home Builders noted that a growing share of builders were cutting prices to boost sales – 29% in March, compared with 26% in February.
The median sale price of a new home in February was $414,500. Last February, new homes sold for a median price of $420,900.
Read more: More home builders cut prices to lure buyers put off by high costs
Builders were also boosting other incentives to entice buyers, such as offering to cover tens of thousands of dollars in closing costs.
One of the biggest home builders in the U.S., Lennar (LEN), recently said incentives to sell homes were running more than double what the company considered to be normal, with buyers seemingly worried about job security.
About seven in 10 Americans surveyed by Clever, a real-estate platform, said that they were worried about the job market. Nearly half also said that they could not maintain their current lifestyle for six months if they lost income, the company noted.
In Florida’s Sarasota and Manatee counties, Lennar was offering buyers a price reduction on new homes of up to $45,000, and a credit of up to $14,000 at closing. In another city in Florida, the builder cut the price of a new home by over $100,000 to encourage buyers.
Read more: Home prices are falling, but job security has become a new concern, Lennar says
Another builder, KB Home (KBH), has been deploying a similar tactic. The company’s chief executive said that buyers were “working through affordability concerns” and “uncertainties” due to worries about the U.S. economy and geopolitics that are delaying their purchases.
In its guidance for the full year, the company said it was decreasing its average selling price to a range of $480,000 to $495,000, down from a January estimate of $488,000 to $498,000.
The builder has also been offering mortgage-rate buydowns to some new-home buyers. A rate buydown is a loan with a lower interest rate that can either be temporary or permanent.
For instance, in Florida, KB Home was offering a 30-year fixed-rate loan backed by the Federal Housing Administration at a rate of 4.99%. KB Home said on its website that it would contribute up to 5% of the purchase price toward a permanent interest-rate buydown.
The rate for a 30-year mortgage was averaging 6.77% as of Tuesday morning, according to Mortgage News Daily.
Read more: Spring is usually a good time for new-home sales. That may not be the case for this homebuilder.
-Aarthi Swaminathan
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03-25-25 1122ET
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