After blasting off in July, new-home sales returned to earth in August. Sales dropped by 4.7% month over month, according to data published Wednesday by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD).
In August, new-home sales posted a seasonally adjusted annual rate of 716,000. This was down from the rate of 751,000 in July, which was revised upward. Despite the monthly decline, new-home sales still posted an annualized increase of 9.8%, higher than the 5.6% year-over-year rise recorded in July.
Economists partially attribute this year’s faster sales pace to a lower median sale price, which dropped 4.6% year over year in August to $420,600.
“New-home sales shocked me because I had anticipated the previous month’s data to be revised lower, and it was revised up,” HousingWire Lead Analyst Logan Mohtashami said. “Clearly, lower rates are helping new-home sales grow again. And this is why we saw single-family permits rise in the last new-home sales report and the builders’ future outlook survey be positive the last three months.”
While the recent decline in mortgage rates could lead to an increase in buyer traffic for homebuilders, economists don’t believe it will be a panacea. That’s because they also expect the Federal Reserve’s interest rate cut to yield an uptick in existing-home inventory and sales.
“Buyers who are back in the market will find they have more options. The inventory of existing homes has been increasing as more owners are listing their home for sale, and lower rates will encourage more homeowners to list,” Lisa Sturtevant, chief economist at Bright MLS, said in a statement. “As a result of more existing homes on the market, there could be less demand for new homes.”
Sturtevant also noted that lower mortgage rates also tend to lead to rising prices, which would put added stress on a market already plagued by affordability constraints.
“While there may be more buyers in the market, home builders might find that consumers’ purchasing power has not increased,” Sturtevant said.
But a possible salve for buyer affordability challenges is an increase in new-home inventory, which jumped 1.7% month over month and 9.1% annually to 467,000 unsold listings. This represents 7.8 months of supply at the current sales pace. This increase is why First American deputy chief economist Odeta Kushi is optimistic about the future of the new-home sale market.
“The long-term housing shortage, lower mortgage rates, and builders’ ability to offer incentives will help to buoy new single-family sales,” Kushi said in a statement. ”However, builders continue to grapple with challenges stemming from the ‘5 Ls’: labor, lots, legal issues, lumber, and lending.
”Despite the challenges, the new-home market will likely continue to outperform the existing-home market over the near term because, unlike existing homeowners, builders are not rate locked-in.”
Regionally, new-home sales were down month over month in the Northeast (-27.3%), the Midwest (-5.8%) and the West (-17.8%). The South meanwhile, saw sales rise 2.7% from July.
Year over year, sales grew in the Midwest (+26.6%) and the South (18%) but fell in the West (-6.7%) and the Northeast (-33.3%).
