Mortgage Rates Soar to 7% But Home Sales Defy Gravity: Is the Housing Market Unbreakable?

New home sales inch higher despite 7% mortgage rates: ‘There’s more opportunity,’ economist says

As the housing market grapples with limited inventory and rising costs, homebuyers are increasingly considering newly built homes.

In March, sales of new single-family houses surged by 8.3% year-over-year, surpassing 693,000 units.

Compared to the existing homes market, new construction offers several advantages.

Homebuilders are offering incentives such as reduced prices, rate buy-downs, and covered closing costs.

This flexibility makes new homes more affordable for buyers facing higher mortgage rates.

At the same time, the supply of existing homes remains low due to factors such as rising interest rates, which disincentivize homeowners from selling and trading in their low mortgage rates.

As a result, the price gap between new and existing homes has narrowed significantly.

Currently, the median price of a new home is only about 4% higher than that of an existing house.

This is a sharp contrast to the pre-pandemic period, when new homes commanded a premium of over 40%.

Experts attribute the increased affordability of new homes to builders prioritizing sales volume over profit margins.

This shift gives price-sensitive buyers with constrained budgets more options in the new homes market, which was previously less accessible to them.

So, while the overall housing market remains challenging, homebuyers are discovering new opportunities in the new construction segment, thanks to increased supply and incentives offered by builders.