US new home sales down as mortgage rates rise
Economists note supply is essential in balancing the market.
US new single-family home sales dropped to a five-month low as elevated rates continue to put pressure on the housing market, according to Census Bureau data.
The recent data released revealed the purchases for new single-family homes plunged by 8.7% to 675,000 in August. July saw much higher sales at 739,000 units sold.
“New single-family home sales fell by 8.7% in August to a seasonally adjusted annualized rate (SAAR) of 675,000, but this followed a meaningful upward revision for the July figure of 25,000 to 739,000 SAAR units,” said Doug Duncan, chief economist at Fannie Mae. “July sales were the highest since February 2022. In terms of the supply of listings, the months’ supply jumped eight-tenths to 7.8, the highest since March. The supply of new homes for sale rose 1.2% to 436,000. Of note is that the inventory of completed homes for sale continued to climb and is now at the highest level since April 2020.”
Elevated mortgage rates keeping buyers reluctant
A Bloomberg report said builders have been offering incentives to partially offset some of the pressures on sales, and yet elevated mortgage rates continue to keep prospective buyers at bay. Some even had to cancel deals.
“August was the first month in which sales experienced mortgage rates near or above 7% since last November, which likely explains part of the decline,” said Duncan. “The drop was consistent with the recent decline in the homebuilders’ sentiment survey, as well – although some of this month’s sales drop may be give-back from the strong July reading. The July and August numbers are in line with our current outlook for Q3, though further increases in mortgage rates point to additional softening and pose downside risk to our outlook.”
The Federal Reserve has left its benchmark overnight interest rate unchanged in the range of 5.25%-5.50%. However, the central bank is projecting another hike by year end and monetary policy staying significantly tighter through 2024 than previously expected.
A Reuters report said homebuilder confidence went down to a five-month low in September, while housing starts in August dropped to levels last seen in mid-2020.
The median sales price of a new home nudged slightly down to $430,300, but the number is still well above pre-pandemic levels. New single-family home inventory was 436,000 in August, equating to 7.8 months’ supply at the current building pace.
A separate report showed a national gauge of home prices in the US reached a record high in July.
“Home prices continue to march higher despite lower home sales,” Lawrence Yun, chief economist at the National Association of Realtors, told Reuters. “Supply needs to essentially double to moderate home price gains.”
Holden Lewis, home expert at NerdWallet, said buyers should look out for offerings of incentives from builders.
“August saw a drop in sales of new homes, but they’ll bounce back soon enough,” said Lewis. “The inventory of unsold new homes is at its highest since December, and builders will be motivated to offer incentives to get them sold. Look for a resurgence of mortgage-rate buydowns, in which the sellers give buyers a break on the monthly payments for the first one to three years.”
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