The only part of the housing market that is growing

When Joel Adler decided it was time to downsize from his six-bedroom home in Parkland, Florida, where he had lived for more than two decades, he was disappointed with the lack of options.

“There weren't many houses to look at,” said Mr. Adler, a 76-year-old retired teacher who had been searching for a year and a half.

Ultimately, he turned to Valencia Sound, a gated community in Boynton Beach, Florida, that opened in 2019 and joined the growing group of homebuyers opting for a newly built home instead of an existing one, a rare bright spot in an otherwise gloomy market.

The housing market has been largely stuck over the past year, bogged down by high prices, rising mortgage rates and a shortage of inventory, pushing many potential buyers to the sidelines.

Existing homes typically account for about 90 percent of sales, but homeowners with low-interest mortgages are reluctant to sell, resulting in limited choices and sky-high prices for potential buyers. Last year, sales of existing homes fell to the lowest level in almost three decades, while the average price reached a record high, according to a recent report from the National Association of Real Estate Agents.

That spurred a surge in construction as developers rushed to meet demand and dangled incentives to entice buyers. Sales of new homes increased by 4.2 percent last year compared to 2022 Census Bureau reported on Thursday.

“The new home market was a bright spot and bucked the trend a bit,” said Odeta Kushi, deputy chief economist at First American Financial Corporation, a real estate services company. New home sales are so robust, she noted, that they now make up about a third of the market.

The growing selection of new homes appealed to Steve Hawthorne, co-owner of Vertical Runner, a shoe store in Hudson, Ohio. After owning older homes for most of his life, he said, he became burned out by the maintenance costs.

“This is a big headache,” Mr Hawthorne, 49, said. “When the prospect of buying another house arose, this time I thought, I'm going to buy a new house.” He plotted a move west and bought a two-bedroom house in Summerlin, a planned community outside Las Vegas developed by Howard Hughes Holdings.

Buyers like Mr. Hawthorne are giving a jolt to the economy; Housing investment, including the construction and purchase of new homes, increased in the second half of last year, at an annual rate of 6.7 percent in the third quarter and 1.1 percent in the fourth quarter, the ministry reported of Handel Thursday.

That's a boon for developers like Howard Hughes, which said in its most recent earnings report that it sold twice as many new homes in the third quarter as the year before. “Our job is to make sure we have enough homes to meet buyer demand,” said David R. O'Reilly, the company's CEO.

Since March 2022, the Federal Reserve has raised interest rates 11 times in an effort to control inflation. That led to higher mortgage rates: After falling below 3 percent during the pandemic, the average rate for a 30-year fixed-rate mortgage rose above 7 percent last summer and has recently hovered around 6 percent, according to Freddie Mac. .6 percent.

“The consensus is that mortgage rates will remain at these levels for a while,” said Jeff Ostrowski, an analyst at Bankrate, a consumer financial services company. His company has predicted that mortgage rates will do just that fall below 6 percent by the end of 2024, as the Fed has indicated it will cut rates this year.

It will take some time for the housing market to adjust as the supply of homes – new and existing – increases and puts downward pressure on prices. “There is a real shortage of inventory,” Mr. Ostrowski said. “I received a call from someone this morning asking if I wanted to sell my house.”

House prices rose 0.4 percent nationally in December from the previous month, the third straight month of slower growth and the smallest increase since June, figures show. a report from Redfina real estate service provider.

New homes tend to be more expensive than existing ones, and builders are reconfiguring floor plans and reducing room sizes in an effort to appeal to price-conscious buyers.

Sellers of new homes are also offering incentives such as discounts on mortgage rates and upgraded features such as new appliances and countertops, said Ms. Kushi, the first American economist.

“It's an affordability issue,” she said. “How do you get people in? As a builder you don't want to lower prices.”

Mr. Hawthorne, the buyer in Nevada, said he was able to negotiate for a new washer and dryer and an epoxy floor in his garage. “Overall, they weren't big money items, but they were nice amenities,” he said.

And by choosing to buy a new home when he did, Mr. Hawthorne said, he faced less hassle from rival buyers.

“When money was cheap, competition was fierce,” he said. “When I closed in early September, hardly anyone was looking.”