Driven by strong buyer demand and the expectation of higher mortgage rates, new home sales ended the year on a strong note, reaching their highest level since March 2021.

Sales of newly built, single-family homes in December increased 11.9% to an 811,000 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 7.3% in 2021 compared to the previous year.

“Though builders continue to grapple with higher construction costs, the December data reveal ongoing demand for new construction, given lean inventories of resale homes,” said Chuck Fowke, chairman of the National Association of Home Builders (NAHB) and a custom home builder from Tampa, Florida.

“The double-digit sales gain in December was likely due to motivated buyers who were seeking to sign sales contracts before interest rates move higher at the start of 2022,” said NAHB chief economist Robert Dietz. “Higher interest rates this year will price out some buyers from the market, but the existing home inventory shortfall remains.”

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 811,000 units is the number of homes that would sell if this pace continued for the next 12 months.

Inventory remained steady at a 6-months’ supply, with 403,000 new single-family homes for sale, up 34.8% from December 2020.

The median sales price fell to $377,700 from $416,100 in November, however it was up from the $365,300 median price posted a year ago, due primarily to higher development costs, including materials.

Regionally, on a year-to-date basis, new home sales fell in all four regions, down 5.8% in the Northeast, 7.6% in the Midwest, 5.9% in the South and 10.5% in the West.