New home sales dropped 8.7% in August compared with July, as the average rate for a 30-year fixed-rate mortgage hovered at around 7.2%, according to estimates released jointly by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.
Year-over-year, however, new home sales were up 5.8% compared with August 2022.
New home sales were at a seasonally adjusted annual rate of 675,000, up from 638,000 a year ago.
The median sales price of a new home sold in August was $430,300. The average sales price was $514,000.
As of the end of the month there were about 436,000 new homes available for sale – about a 7.8-month supply at the current sales rate.
“Builders continue to grapple with supply-side concerns in a market with poor levels of housing affordability,” says Alicia Huey, chairman of the National Association of Home Builders (NAHB), in a statement. “Higher interest rates price out demand, as seen in August, but also increase the cost of financing for builder and developer loans, adding another hurdle for building.”
“Sales weakened in August with average mortgage rates above 7 percent,” adds Robert Dietz, chief economist for NAHB. “While some builders were able to offset that effect via mortgage rate buydowns, rates moved higher this month, suggesting the pace of new home sales will weaken further for September.”
Dietz further adds that “builders are being more cautious about managing their inventory in this rising rate environment.”
“A year ago, 10 percent of the new home inventory listed for sale consisted of homes that had not yet started construction, and that share has now risen to 17 percent of the total inventory,” he says.
Odeta Kushi, deputy chief economist for First American, points out that the median sale price for a new home declined 1.4% in August compared with July and remains 2.3% lower than one year ago.
“The median sale price of a new home has historically been higher than that of an existing home, but that spread has steadily declined this year,” Kushi says.
“According to NAHB, 32 percent of builders reported cutting home prices in September, the largest share of builders cutting prices since December 2022,” Kushi says, “while 59 percent of builders provided sales incentives of all forms in September, more than any month since April 2023.”
“Incentives can come in the form of rate buy-downs, paying points for buyers, offering price reductions, and offering upgrades on interior quality features,” she adds. “As a result of these incentives, the new-home market has fared significantly better than the existing home market, which continues to suffer from the mortgage rate lock-in effect. Builders are benefitting from the lack of re-sale inventory, but the increase in mortgage rates in August proved to be a significant headwind. Higher rates price out prospective buyers and, as a result, new home sales fell.”
New home sales are likely to rise again in the months to come – due mainly to strong demand from millennials, who continue to age into their prime home-buying years.
“Some good news in month’s report, 14 percent of new-home sales were priced below $300,000, an increase from 11 percent one year ago,” Kushi says. “Indeed, according to NAHB, 42 percent of new single-family home buyers were first-time buyers on a year-to-date basis in 2023. This is significantly higher than the 27 percent reading from a more normalized market in 2018. First-time home buyers are increasingly turning to the new-home market.”
Photo: Alexander Andrews