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By Robert Dietz, NAHB
A slight decline in mortgage rates and limited existing inventory helped new home sales to edge higher in February even as housing affordability challenges continue to act as a strong headwind on the market. Sales of newly built, single-family homes in February increased 1.8 % to a 676,000 seasonally adjusted annual rate from a revised January number, according to newly released data from the U. S. Department of Housing and Urban Development and the U. S. Census Bureau. The pace of new home sales in February was up 5.1 % compared to a year earlier. New home sales have been roughly flat thus far in 2025, as ongoing limited inventory of existing homes in many markets continues to support the need for new homes. Lower mortgage rates helped to lift demand in February, despite other near-term risks such as tariff issues and affordability concerns. A new home sale occurs when a sales contract is signed, or a
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deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the February reading of 676,000 units is the number of homes that would sell if this pace continued for the next 12 months. New single-family home inventory in February continued to rise to a level of 500,000, up 7.5 % compared to a year earlier. This represents an 8.9 months’ supply at the current building pace. The count of completed, ready-tooccupy homes available for sale increased again, rising to 119,000, up 35 % from a year ago and marking the highest count since mid-2009. However, after accounting for a low 3.4 months’ supply for the existing single-family market, total market inventory( new and existing homes) stands at a lean 4.2 months’ supply per NAHB estimates. A balanced market is typically defined as a 6 month’ s supply. |
How Mortgage Rates Affect Housing Affordability
From NAHB
Housing affordability remains a critical challenge across the country, mortgage rates continue to play a central role in shaping home-buying power. Although mortgage rates stayed elevated throughout 2023 and early 2024, recent data shows a modest decline in mortgage rates. Even slight declines can have a significant impact on housing affordability, pricing more households back into the market.
At the beginning of 2025, with the average 30-year fixed mortgage rate at 7 %, around 31.5 million households could afford a median-priced home at $ 459,826. This requires a household income of $ 147,433 by front-end underwriting standards1.
In contrast, if the average mortgage rates had remained at the recent peak of 7.62 % in October 2023, only 28.7 million households would have qualified.
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This 62-basis point decline has effectively priced 2.8 million additional households into the market, expanding homeownership opportunities.
As rates climb higher, the pricedout effect diminishes. When interest rates increase from 6.5 % to 6.75 %, around 1.13 million households are priced out of the market, unable to meet the higher income threshold required to afford the increased monthly payments. However, an increase from 7.75 % to 8 % would squeeze about 850,000 households out of the market.
This Eye on Housing post provides a detailed breakdown of how mortgage rates affect monthly mortgage payments and the number of households that can afford a median-priced home.
1 The sum of monthly payment— including the principal amount, loan interest, property tax, homeowners’ property and private mortgage insurance premiums( PITI)— is no more than 28 % of monthly gross household income.
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