New home inventory is up 115% as builders try to push Americans into buying a new house

A combination of declining mortgage rates, reduced home prices and incentives provided by home builders helped spur home sales in January.

Sales of newly built, single-family homes in January increased to 670,000 seasonally adjusted annual rate. This was 7.2% higher than the 625,000 units sold in December, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

The latest Housing Market Index, which checks the pulse of the single-family housing market through a monthly survey of National Association of Home Builders, found that 57% of builders were using incentives to bolster sales, including providing mortgage rate buy-downs and offering price reductions.

“Buyer incentives, along with stabilizing mortgage rates during the month of January, increased the pace of new home sales for the month,” says Alicia Huey, chairman of the association and a custom home builder and developer from Birmingham. “However, in a sign of current market weakness, sales are down 19.4% compared to a year ago.”

NEW HOMES: Is the housing market recovering? Here’s why home builders feel ‘cautious optimism.’

HOUSING MARKET: ‘Home sales are bottoming out’: Are homebuyers now calling the shots in 2023?

While new home sales edged higher in January, the recent uptick in mortgage rates would imply continued weakness in the coming months, said Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis.

“In terms of affordability, the median price is down for the third straight month and is down compared to a year ago,” she said.

What constitutes a new home sale?

A new home sale occurs when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the January reading of 670,000 units is the number of homes that would sell if this pace continued for the next 12 months.

Inventory of new construction homes

New single-family home inventory has been declining since September when it stood at 10.1 months’ supply. in January, it stood at 7.9 months’ supply. A measure near a 6 months’ supply is considered balanced. Completed, ready-to-occupy inventory, is up 115% from a year ago, to 73,000 in January from 34,000 last year. However, that inventory type remains just 17% of total inventory.

“The backlog of new construction homes continues to emerge into the market just in time for the spring shopping season,” says Zillow Senior Economist Nicole Bachaud. “Many home builders are offering incentives to buyers, sweetening the deal just enough to bump sales from the month prior.”

Mortgage rates ticked down across January, opening the door to some buyers who had been shut out by affordability constraints, she said.

“But a low flow of new listings from existing homes left buyers wanting for more, and new construction was able to step in and help fill the gap slightly.”

Median sale price of a new home

The median new home sale price declined for the third straight month after peaking in October at $496,800. In January, the median price was $427,500, down 8% from December.

Regionally, new home sales fell in three regions in January, down 19% in the Northeast, about 7% in the Midwestand in the West. New home sales rose 17% in the South.

Swapna Venugopal Ramaswamy is a housing and economy correspondent for USA TODAY. You can follow her on Twitter @SwapnaVenugopal and sign up for our Daily Money newsletter here.

This article originally appeared on USA TODAY: New houses languish on market as builders hope for home buying spike