New home sales jumped in 2023. Why that's a good sign for buyers (and sellers) in 2024.

So is this bottom in the housing market?

Last week, National Association of Realtors told us that existing-home sales for December and all of 2023 tumbled to new lows. On Thursday, though, the Census Bureau's preliminary report for December showed new home sales jumped 8% from November and grew 4% from 2022 to 2023.

To be sure, new home sales are just a fraction of existing home sales in the U.S., and new homes sales can fluctuate significantly from month to month.

Still, the 668,000 new homes purchased in 2023 ends a two-year decline. It also talks to two key concerns that have bogged down the market struggling with higher mortgage rates: too few buyers and too few homes for sale.

Home sales fall from pandemic highs

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Mortgage rates have been central to the housing market's swoon. Since 2022, the number of homes sold began tumbling after the Fed announced its plans to raise interest rates in an effort to tame 40-year-high inflation. That ultimately led to higher mortgage rates and fewer and fewer homes sold.

Freddie Mac offered some more good news for the housing market on Thursday: Mortgage rates remained more than a percentage point below October's recent high. The average 30-year mortgage rate ticked up to 6.69% this week.

How mortgage rates rose as the Fed increased interest rates

A strong open-house weekend

These lower mortgage rates may be having a bigger pschological affect on potential buyers, too.

Denise Warner with Washington Fine Properties has sold homes in the Washington, D.C., metro area for 26 years. She noticed just last weekend a different energy among perspective buyers at her open house.

"I was astonished to see so many people, and the reports from my colleagues were the same," Warner said. "When they had their open houses, they stopped counting" the number of visitors because the homes were so full.

"People may have been waiting to see what happens with interest rates, the general economy, what the Fed is doing," Warner said. "With rates settling in the 6s right now, it's bringing a level of comfort to people."

Real estate association expects a stronger 2024

NAR Chief Economist Lawrence Yun in December predicted an upswing in the housing market. Yun and the NAR aren't expecting the housing market to hit the highs it did in 2020 with interest rates at multi-decade lows. They do expect the market to fall a bit short of 2022's sales at 4.71 million homes.

“The demand for housing will recover from falling mortgage rates and rising income,” Yun said. He said he expects housing inventory to jump 30% because higher mortgage rates caused home owners to delay selling.

NAR has singled out the D.C. market and nine others as the most likely to outperform other U.S. areas because of higher pent-up demand.

Markets NAR expects to perform best in 2024

New home prices fell in 2023

Another encouraging sign for buyers in Thursday's new home sales report: an overall decline in sale prices in 2023. The average price of a new home fell 5.3% to $511,100 while the median sales price fell 6.6% to $427,400.

How home sale prices increased after the pandemic

Mortgage rates contributed the most to new home buyers' monthly mortgage payments in recent months. But, the median sales price for all types of home have crept up by thousands of dollars each year since the pandemic.

The NAR found this fall that U.S. homes hadn't been this unaffordable since 30-year mortgage rates hovered around 14% in 1984.