New home sales plunged to start 2025 as high mortgage rates, record prices, and cold weather pushed potential buyers to the sidelines.
Sales of new homes slumped 10.5% in January to a seasonally adjusted rate of 657,000 units, down from December’s revised rate of 734,000, according to Census Bureau data released on Wednesday. The rate marked a three-month low and was lower than Bloomberg consensus expectations for a pace of 680,000.
Capital Economics economist Bradley Saunders said in a note that "last month’s weakness is likely to have been driven in large part by the unseasonably severe winter weather."
He expects "new home sales to have resumed their recent upward trend in February, once the cold weather has passed."
Many house hunters have resisted purchasing due to expensive borrowing costs. Mortgage rates topped 7% in January and remain around the same level, deterring potential buyers.
Read more: Is now a good time to refinance your mortgage?
High homeownership costs have prompted builders to sweeten the deal for budget-conscious house hunters.
PulteGroup (PHM) CEO Ryan Marshall told investors and analysts on the company's fourth quarter earnings call in late January that “affordability is probably the one headwind that's out there, but I continue to think that the economy will figure out ways to solve for that.”
Despite the challenges, major homebuilders remain hopeful that the spring selling season will be a turning point.
“We need the spring to show up for us and to see the sales,” DR Horton (DHI) CEO Paul Romanowski told investors and analysts on the company’s first fiscal 2025 quarter earnings call in late January.
Wall Street analysts have said that a more stable selling period depends on a more consistent mortgage rate environment.
“If we get some rate stability, then the spring season probably continues to improve as it progresses,” Wedbush Securities senior vice president of equity research Jay McCanless told chof360 Finance. “But I’m very worried, as are the builders, about mortgage rate volatility and what that does to buyer psyche.”
In addition, would-be buyers are dealing with high home prices. The median sales price of new homes rose to $446,300 in January from $427,000 in December.
Dani Romero is a reporter for chof360 Finance. Follow her on X @daniromerotv.
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