Market Snapshot Amid Rate Dip
Mortgage rates have just dipped below the 6% mark, yet American homebuyers are not retreating. High rates have historically cooled demand, but recent data indicates a defiant consumer base: new home sales stay higher than year-ago levels, while refinancing surges as homeowners capitalize on slight borrowing cost reductions.
Census Bureau data shows new home sales fell slightly by 1.7% in December, but the market remains resilient with annual sales outpacing 2024 by nearly 4%. The Mortgage Bankers Association reported refinance applications 150% above last year's levels and up 4% from the prior week, suggesting owners with 7-8% mortgages are rushing to lower payments.
Rising inventory in many markets has brought more choices to consumers and slowed home price growth.
Erosion of the Lock-In Effect
Growth in mortgage demand reflects the gradual erosion of the lock-in effect that started in early 2022 with the Fed's pivot to higher rates. While buyers hope for sharper rate drops, recognition grows that rates won't revert to pandemic lows and home prices continue rising. The median price for new builds hit $414,400 last month.
The existing home market stays constrained by the lock-in effect, as owners resist trading 3% mortgages for 6% ones. New construction proves more agile in stimulating demand despite supply limits in both segments.
Because we build exclusively for end users, not as a spec developer, our pipeline looks very different from what you see in the national new home sales data. When a custom home starts, it’s typically tied to a committed client who has already secured financing or is paying cash. That removes a lot of the speculative risk from the equation.
Supply Dynamics and Regional Shifts
Housing supply currently totals 7.6 months, over the six-month threshold that typically favors buyers with negotiation leverage. Opportunity costs extend beyond rates to price trajectories and competition; falling rates prompt both buyers and sellers to adjust expectations, often pushing prices higher as seen in the prior boom.
Florida experiences 2.7% year-over-year price cooling amid high insurance and maintenance costs, contrasting national resilience. Sun Belt states like Florida face a market reset with waning inbound migration, pointing to modest sales and price growth ahead.
The opportunity cost isn’t just about the rate, it’s about price trajectory and competition. Buyers and sellers get the same memo when rates are falling. If we learned anything during the housing boom five years ago, it’s that lower rates push housing prices higher.
Outlook and Key Monitors
Nationally, monitor U.S. jobs and wage data through 2026. The market has endured rapid growth with strained affordability but limited distressed sales, unlike the financial crisis. If employment and wages stabilize, expect sideways grinding rather than correction.
