January 27, 2025

New home sales climbed by 3.6% in December to 698 thousand after having jumped 9.6% in November after  having plunged by 15.3% in October  The October drop was almost exclusively in the South and clearly the result of the combo of Hurricanes Milton and Helene.  Sales in the South and overall will continue to climb in the months ahead.  New home sales can be volatile from month to month, but it seems clear that they are in a gradual uptrend.

After having peaked at 7.6% mortgage rates have fallen to 6.9%.  As inflation subsides further in 2025 and the Fed continues to reduce rates slightly, mortgage rates should decline to 5.9% or so by the end of this year.

Home prices rose 6.1% in December to $427,000 after  having fallen 5.4% in  November..  They tend to be rather bouncy from from to month but over the past year new home prices have risen 2.1%.

Housing affordability currently stands at 99.0 which means that median-income earning consumers had 1.0% less income than required to purchase a median-priced home.  If mortgage rates continue to decline in 2025 as inflation subsides, home prices rise slowly, and income continues to climb, affordability should rise as the year progresses, and that median income earning family should have about 15% more income than required by the end of next year.  This should provide some stimulus for both new and existing home sales.

As a result, we look for new home sales to rise from 698 thousand currently to 800 thousand or so by the end  of 2025.

Stephen Slifer

NumberNomics

Charleston, SC