New Home Sales Up in August but Rising Rates Portend Weakening Market
A brief decline in mortgage rates helped to boost new home sales in August but sales are expected to move on a downward trend in the months ahead as rates have since moved higher and builder sentiment continues to fall due to declining housing affordability and ongoing supply chain bottlenecks.
Sales of newly built, single-family homes in August increased 28.8% to a 685,000 seasonally adjusted annual rate from an upwardly revised reading in July, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. New home sales are down 14% on a year-to-date basis despite the August upturn.
“With housing affordability at a more than 10-year low and the Federal Reserve continuing to aggressively raise interest rates to rein in stubbornly high inflation, policymakers must find ways to reduce construction costs that are delaying home projects and putting upward pressure on home prices,” said Jerry Konter, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Savannah, Ga.
“The sales gain in August reflects that there is clearly sidelined demand for housing, but it is being constrained by rising interest rates that are pricing many potential consumers out of the market, particularly entry-level buyers,” said NAHB Chief Economist Robert Dietz. “After a brief lull when mortgage rates fell below 5.3% for much of August, they have since jumped much higher in September and are now approaching 7%. The Fed should take careful note of the weakening of the housing market given the policy lag involved with monetary policy. Housing is a leading indicator of economic conditions.”
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 August reading of 685,000 units is the number of homes that would sell if this pace continued for the next 12 months.
New single-family home inventory remained elevated at an 8.1 months’ supply. The count of homes available for sale, 461,000, is up 24.6% over last year. Of this total, only 49,000 of the new home inventory is completed and ready to occupy. The remaining have not started construction or are currently under construction.
Reflecting gains for construction costs, the median new home price in August was $436,800, up 8.2% from a year ago. This is a diminished growth rate as a growing number of builders cut prices due to slackening demand.
Regionally, on a year-to-date basis, new home sales fell in all four regions, down 15.6% in the Northeast, 24.5% in the Midwest, 10.8% in the South and 16.7% in the West.