While new home sales posted a modest gain in December, elevated mortgage rates and higher construction costs continue to hinder housing affordability and put a damper on consumer demand.

Sales of newly built, single-family homes in December increased 2.3% to a 616,000 seasonally adjusted annual rate from a downwardly revised reading in November, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. New home sales were down 16.4% in 2022 compared to the previous year.

“Builder incentives and declining mortgage rates during the month of December helped push new home sales up for the month,” said Jerry Konter, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Savannah, Ga. “However, because of higher construction costs and decreasing affordability, sales are down more than 25% compared to a year ago.”

“In a further sign of decreasing housing affordability, even though the median home price is down for the second straight month, it is still up 7.8% compared to last year,” said Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis. “Elevated inventories are another concerning sign of a soft market.”

A new home sale occurs when a sales contract is signed or a 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 December reading of 616,000 units is the number of homes that would sell if this pace continued for the next 12 months.

New single-family home inventory remained elevated at a 9 months’ supply (of varying stages of construction). A measure near a 6 months’ supply is considered balanced. The count of homes available for sale, 461,000, is up 18.5% over last year.

A year ago, there were just 33,000 completed, ready to occupy homes available for sale. By December 2022, that number increased 115% to 71,000, reflecting flagging demand and more standing inventory due to lower sales. Completed, ready to occupy inventory however, remains just 15% of total inventory.

The median new home sale price in December was $442,100, down 3.7% from November, however, it is still up 7.8% compared to last year due to higher construction costs.

Regionally, on a year-to-year basis, new home sales fell in all four regions, down 8.2% in the Northeast, 22.1% in the Midwest, 13.0% in the South and 23.5% in the West.