The real estate industry is expecting homebuilders to add more inventory this year, but new-home sales tanked in the closing months of 2018, according to a Redfin report.
Sales of new homes dropped 4.6% and 11.6% in November and December, respectively.
While the addition of supply is expected to cool housing costs, newer homes are typically more expensive and won’t necessarily be as affordable for homebuyers. The median sale price for a new home in the fourth quarter was $371,200, compared to the median sale price of $287,000 for an existing home.
“All around the country homebuyers were backing off at the end of last year due to high prices and high mortgage interest rates, and 2018 tax reform made it even more expensive to buy high-priced homes in high-tax states like Massachusetts, Connecticut and New York. New homes tend to be pricier than existing homes, which is one reason sales of new homes dropped off so much in the Northeast,” Daryl Fairweather, Redfin’s chief economist, said in a press release.
New-home sales in the Northeast dropped 16.1% year-over-year in December, marking the largest decline of any region. Sales of new homes in the Northeast have remained in negative territory longer than any other region, as they haven’t seen growth since January 2017, according to Redfin.
This pattern of falling new-home sales should shift somewhat as sales pick up on recent mortgage rate declines and job growth. Builder confidence increased slightly in December, and the price of materials declined 1.8%, providing some additional relief for the construction industry.