New-Home Sales Surge Despite High Rates – Impact on Buyers & Seller

December brought an unexpected boost in new-home sales, with signed contracts reaching a seasonally adjusted annual rate of 698,000, up 3.6% from November and 6.7% year-over-year. Even as mortgage rates remained close to 7%, demand for newly built homes continued to climb.

One major factor? More affordable new construction hitting the market. According to Realtor.com® Senior Economist Joel Berner, 20% of December's sales were homes priced under $300,000, up from 15% last year.

The median sales price of new homes also increased, reaching $427,000—a 6% gain from November and 2% higher than a year ago.

Why Are New Homes Selling Better Than Existing Homes?

The new-home market outperformed existing homes in 2024, with an estimated 683,000 new homes sold, a 2.5% increase from 2023.

Two major reasons explain this trend, according to Bright MLS Chief Economist Lisa Sturtevant:

1. More Inventory Options – Many markets had a greater supply of new homes, drawing buyers away from existing homes.

2. Builder Incentives – Home builders offered concessions like rate buydowns to make new construction more attractive.

In contrast, the existing-home market faced historically low inventory, averaging just 3.7 months of supply, compared to 8.3 months for new homes throughout the year.

Will Prices Drop in 2025? Experts Weigh In

The supply of new homes hit 494,000 in December—up 10% from a year ago—providing buyers with more choices. However, Thomas Ryan, North America economist for Capital Economics, suggests that an increased supply may start putting downward pressure on home prices in 2025.

“The balance between the new and existing home markets could change in 2025,”

 adds Sturtevant. As more homeowners list their properties, inventory in the existing-home market may rise, affecting demand for new construction.

Despite this shift, builders will likely continue offering incentives to entice buyers, keeping competition strong between new and resale properties.

Bottomline

The new-home market is thriving even in a high-rate environment, thanks to better inventory and builder incentives. With more affordable options hitting the market and potential price adjustments in 2025, now is an exciting time for buyers to explore new construction. If you’re thinking about moving to Orange County, let's connect!

Reference: Griffith, Keith. New-Home Sales Rose in December in Defiance of Higher Mortgage Rates. January 27, 2025.