(Bloomberg) -- Sales of new US homes increased in January by more than expected to the highest level in nearly a year, fueled entirely by purchases in the South, indicating some stabilization in the housing market after a brutal year.
Purchases of new single-family homes rose 7.2% to an annualized 670,000 pace after an upwardly revised 625,000 in December, government data showed Friday. The January pace exceeded all forecasts in a Bloomberg survey of economists, which had a median estimate of a 620,000 pace.
While the data tend to be volatile, the increase suggests the housing market may be steadying after one of its worst years. Mortgage rates eased in January but they’ve risen since — and may increase further as the Federal Reserve keeps boosting borrowing costs — so the reprieve in sales may be short-lived.
Other data point to a slowdown: Home-purchase applications tumbled to a 28-year low last week amid a jump in borrowing costs, and new home construction retreated for a fifth month in January to the lowest level since June 2020. Still, homebuilders were more optimistic last month, partly on the assumption that peak mortgage rates have passed for this cycle.
Sales in the South, the largest US region, jumped 17.1% last month to the highest annualized pace in nearly a year. All other regions declined, including a 19.4% slump in the Northeast.
There were 439,000 new homes for sale as of the end of last month, the lowest since May. That represents 7.9 months of supply at the current sales rate, the lowest in almost a year. The number of homes sold in January and awaiting the start of construction — a measure of backlogs — increased to an almost one-year high.
Buyers may also be flocking to new construction since properties already on the market are hard to come by. Given the run-up in mortgage rates, homeowners have been disincentivized from listing, especially if they locked in a low rate on their current house.
Prices Fall
The report, produced by the Census Bureau and the Department of Housing and Urban Development, showed the median sales price of a new home fell 0.7% from a year earlier to $427,500. That’s the first decline since August 2020.
Companies and the federal government are stepping in to ease affordability. Lenders are offering enticements to clients to compensate for the higher mortgage rates, while President Biden’s administration announced this week some of the biggest changes to home lending in a decade to make buying more affordable for young and first-time purchasers.
Read more: Home Lenders Hunt for Ways to Make 6% Mortgages More Attractive
New-home purchases account for about 10% of the market and are calculated when contracts are signed. They are considered a timelier barometer than purchases of previously-owned homes, which are calculated when contracts close. Those sales fell for a 12th-straight month in January, extending a record decline.
The new-homes data are volatile; the report showed 90% confidence that the change in sales ranged from a decline of 13.2% to an increase of 27.6%.