While new home sales are rising, existing home sales continue to decline, contributing to an already convoluted housing market.
- In January, the number of new home sales increased 7.2% compared to the month before, rising more than expected.
- Meanwhile, during the same month, existing home sales declined 0.7% for the 12th straight month.
- Higher mortgage rates generally drive down home sales, but new construction sales are improving as sellers motivate buyers with incentives and price cuts, Axios reports.
Why it’s news
The housing market has fluctuated since the pandemic, first reaching startlingly high prices and then slowing as mortgage rates rose. Now, buyer incentives are helping the market keep its momentum.
New construction sellers are using mortgage buydowns and other incentives to entice potential buyers. With mortgage buydowns, some sellers are offering interest rates as low as 4.5%.
Buyers are also likely encouraged as the median sale price for a new home has dropped from December’s $465,600 to $427,500.
Despite better sales for new construction, sales are still much lower than previous highs. Adding to sellers’ troubles, mortgage rates are on the way back up, hitting 6.5% last week, Axios reports.
Backing up a bit
Potential homebuyers are struggling to find homes within their budget due to rising mortgage rates, but a slower market could mean a solution.
Mortgage rate buydowns are one of the new incentives sellers are using to move a home more quickly on the market. A buydown is appealing to potential buyers as it gives them a chance to have a lower interest rate during the first one to three years.
Buyers taking advantage of these incentives will have to pay the full contract rate eventually, but some are gambling that they can refinance if interest rates go down.
During the final three months of 2022, real estate company Redfin found that many sellers incentivized their buyers to close a deal. Nearly 42% of homes sold at the end of 2022 included buyer incentives such as price reductions, covering closing costs, and appliance warranties. That marks an increase from 30% in the third quarter of 2022.
For homebuyers looking to offset the increased mortgage rate costs, these incentives were motivators to buy. Experts expect that this trend of incentives will continue into 2023. Sellers of both existing and new build homes offered incentives to buyers.