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March 25, 2025

New home sales, which are recorded at the contract signing, rose 1.8% in February, following an upwardly revised, weather-impacted decline of 6.9% in January. The South and Midwest drove the strength in sales, which reached a level 5.1% higher than a year ago.

The median sales price for a newly built home dropped to $414,500. According to the National Association of Home Builders, roughly 75% of households do not have the required minimum income to afford a home at this price point with a 6.5% mortgage rate. Home builders have pivoted to building smaller homes, but even at a $300,000 price point, 60% of households are unable to buy a new home. Affordability is also challenged by rising property taxes and insurance costs.

In February, half a million newly built homes were available for sale at all stages of the construction process. That is the highest level of inventory since November 2007; that translates to 8.9 months of supply at the current sales pace. Smaller private home builders are sitting on significant inventory levels because they are unable to offer the same discounts and mortgage rate buydowns as the larger, publicly traded builders. We expect to see consolidation.

Existing home sales, which are recorded at the contract closing and reflect lagged activity, jumped 4.2% in February, due entirely to stronger sales in the South and West. Compared to a year ago, sales were down 1.2% while the median home price continued to edge higher to $398,400.

Mortgage rates moved slightly lower since peaking in mid-January but remain above 6.5% at the start of the busy Spring home-buying season. Buyers are slowly entering the housing market, but resale supply remains tight in many in-demand markets. Inventory levels sit at 3.5 months of supply at the current sales rate; the market needs a six-month supply to balance.

Home buyers have become even more pessimistic about the direction of mortgage rates in the coming year, according to Fannie Mae. A February survey of consumer sentiment showed that only a quarter of respondents think it is a good time to buy a home. Respondents indicated growing worry about household income and job security. The share of respondents who think their personal financial situations will worsen over the next 12 months jumped to 22% in February, the highest since September 2023; about 37% think their financial situation will improve, down from 43% last month and a peak of 45% in November last year.