January new home sales surge to 10-month high as prices fall

US new home sales rose to a 10-month high in January as prices fell, but a rebound in mortgage rates could slow a much-anticipated turnaround in the housing market.

New home sales rose 7.2% last month to a seasonally adjusted annualized rate of 670,000 units, the highest since March 2022, the Commerce Department said on Friday. December sales pace increased to 625,000 units from previously reported 616,000.

New apartment sales are counted when the contract is signed and are considered a leading indicator for the housing market. At a regional level, sales rose in the South but plummeted in the Midwest, Northeast and West. Economists polled by Reuters had forecast new home sales, which make up just a small portion of US home sales, to rise to 620,000 units.

Revenue fell 19.4% year over year in January.

The housing market was the biggest casualty of the Federal Reserve’s aggressive rate hikes. Housing investment has contracted for seven consecutive quarters, the longest such streak since 2009.

There are signs that the worst of the housing market crisis is probably over. Home sales fell slightly in January, while homebuilder confidence rose to a five-month high in February, although it was still depressed.

But a trend reversal on the housing market is still a long way off. Mortgage rates resumed their upward trend after robust retail sales and jobs data, along with strong monthly inflation data, raised the prospect of the central bank raising interest rates into the summer.

The interest rate on 30-year fixed-rate mortgages rose to an average of 6.50% this week from 6.32% last week, according to data from mortgage financing agency Freddie Mac. The third consecutive weekly increase took the rate to a three-month high.

The median price for new homes in January was $427,500, down 0.7% from a year earlier. There were 439,000 new homes on the market at the end of last month, up from 452,000 in December.

At the pace of sales in January, it would take 7.9 months to clear the market for houses compared to 8.7 months in December.