U.S. New Home Sales Surge 9.6% in March as Home Buyers Turn to Builders

A lack of inventory has pushed U.S. home buyers to purchase new homes, prompting a surge in sales in March.

The strength in new home sales was also driven by a massive jump in sales in the Northeast. And overall, new home sales are trending higher as buyers have a low number of options with previously owned homes.

U.S. new home sales rose 9.6% to an annual rate of 683,000 in March, from a revised 623,000 in the prior month, the Commerce Department reported Tuesday. That’s at the highest level since last year.

The number is seasonally adjusted, and refers to how many homes would be built over an entire year if builders continue at the same pace every month.

The jump was better than what economists on Wall Street expected. They had forecast new home sales to fall to 634,000 in March.

The data from February was revised significantly. New home sales fell to a revised 623,000 in February, compared with the initial estimate of a 1.1% increase to 640,000.

The new home sales data are volatile month-on-month and are often revised.

Key details: The median sales price of a new home sold in March was $449,800.

The supply of new homes for sale fell 9.5% between February and March, equating to a 9-month supply.

Regionally, the Northeast led new home sales by 171%. Only the South saw new home sales fall.

Big picture: Putting aside the fact that new home sales can be very volatile–the Northeast saw a big drop in sales in February, which was reversed in March–builders are seeing strong demand overall from home buyers.

Buyers continue to find the housing market challenging, with a low number of listings, particularly with previously owned homes. As home sellers hold on to their ultra-low mortgages, many buyers have turned to new builds.

And builders continue to offer various incentives from buydowns to covering buyers’ closing costs, to boost demand.

What are they saying? “The main story is that the trend in new home sales has improved despite high mortgage interest rates,” Neil Dutta, head of economics at Renaissance Macro Research, wrote in a note.

“New home sales represent signed contracts and are thus considered a leading indicator of activity,” he added.

About 1 in 3 homes for sale on the market are new builds, Lisa Sturtevant, chief economist at Bright MLS, said in a statement, which is up from 1 out of 10 homes in a more typical housing market.

And even though there are options in the new home sales sector, it’s “not necessarily a boon for first-time buyers,” she added, as new home prices have been 10-15% higher than existing homes.

Market reaction: Stocks were down in early trading on Tuesday. The yield on the 10-year Treasury note fell to 3.4%.

Shares of builders, including D.R. Horton, Inc., Lennar Corp, PulteGroup Inc., and Toll Brothers Inc. were mixed in the morning trading session. The home-builders exchange-traded fund was down.

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