US New Home Sales Beat Expectations in December

The U.S. housing market ended 2024 on a high note, with new home sales beating expectations in December. According to the U.S. Census Bureau, new home sales rose 2.2% from the previous month to a seasonally adjusted annual rate of 4.24 million, topping the 4.2 million pace forecast by analysts. Sales also rose 9.3% in December compared to the same month last year, marking the third consecutive monthly increase in sales.



The median home sales price rose for the 18th consecutive month in December, increasing to $404,000, up 6% from a year earlier. This surge in sales and prices comes as a surprise, given the ongoing affordability challenges and elevated mortgage rates that have plagued the housing market throughout 2024.

Experts attribute the unexpected increase in new home sales to several factors:

1. Increased Inventory: At the end of December, there were just 1.15 million homes on the market, which was well below the monthly historical average of about 2.25 million. This low inventory has been a significant factor contributing to the sales slump in the housing market. However, the slight increase in inventory at the end of 2024 may have encouraged more buyers to enter the market, leading to the increase in sales.
2. Mortgage Rates: While mortgage rates have been mostly hovering around 7% since 2023, there was a brief period in September 2023 when rates fell to a 2-year low. Although the rates have since increased, the brief period of lower rates may have encouraged some buyers to enter the market, contributing to the increase in sales.
3. Job Changes and Family Situation Changes: Despite the overall sales slump, moves of necessity, such as job changes and family situation changes, have continued to drive home sales. These factors may have contributed to the increase in sales in December 2024.
4. Downsizing to More Affordable Markets: With home prices at an all-time high, some homeowners may have decided to downsize to more affordable markets, contributing to the increase in sales.

These factors may influence future sales trends in the following ways:

* As inventory levels continue to rise, more buyers may be encouraged to enter the market, leading to an increase in sales.
* If mortgage rates continue to fluctuate or decrease, more buyers may be able to afford homes, leading to an increase in sales.
* As the economy improves and job market stabilizes, more people may be willing to move for job opportunities or to accommodate changes in their family situation, leading to an increase in sales.
* As home prices continue to rise, more homeowners may decide to downsize to more affordable markets, contributing to an increase in sales.

However, it is important to note that these factors may not be enough to offset the overall sales slump that has been ongoing since 2022. The combination of elevated mortgage rates, rising home prices, and a dearth of homes for sale has made it difficult for many prospective homebuyers to enter the market. As such, it remains to be seen whether the increase in sales in December 2024 will be a trend that continues throughout 2025.