Newly built home sales experienced an 8.7% decline in August, falling to a seasonally adjusted rate of 675,000 units. This stark drop was reported by the Census Bureau on Tuesday, marking a significant departure from July’s revised rate of 739,000 units. The actual numbers were far below the Bloomberg consensus forecast, which had anticipated a more modest 2.2% monthly decline to 698,000 units.
Despite this unsettling downturn, it is worth noting that the pace of sales remains 5.8% higher than the figures recorded at this time last year.
The slump in activity represents a substantial reversal of fortunes for homebuilders who had experienced a prosperous year thus far. This downturn underscores the pervasive impact of escalating mortgage rates across all sectors of the housing market, despite attractive incentives.
Keith Gumbinger, vice president of HSH.com, commented on this trend, observing, “Tight inventories of existing homes for sale have pushed some buyers toward the new construction market. That said, that market is, of course, also affected by uncertainty and higher financing costs, although builder incentives can help offset these to some degree.”
Gumbinger further noted that builder sentiment is showing signs of reflection on the evolving market conditions, with a potential dip in activity anticipated for September following the slowdown observed in August.
This decline in new home sales aligns with the rise in mortgage rates throughout August, reaching a 22-year high of 7.23% as reported by Freddie Mac. Experts predict that rates are likely to remain above the 7% threshold for the foreseeable future.
In a parallel development, the resale market has also borne the brunt of elevated rates, with sales of previously owned homes plummeting to the lowest level for the month of August since 2010, according to National Association of Realtors chief economist Lawrence Yun. The pace, down 15.3% year over year, is also the third slowest of the current housing cycle.
These high rates have contributed to homeowners choosing to stay put rather than sell, further exacerbating the existing home inventory shortage. Initially, this trend had bolstered sales in the new home market, but with the continued rise in mortgage rates, the landscape has shifted.
Yun cautioned, “In the short run, it’s possible that rates may go up to 8%.”
This scenario places added pressure on homebuilders to entice potential buyers, a move that is already in progress. Notably, D.R. Horton (DHI) is presently offering a limited-time opportunity to secure a 30-year fixed rate on select government-backed home loans as low as 5.50%.
In September, 32% of builders opted to reduce home prices, compared to 25% in August, marking the highest share of builders offering price cuts since December 2022. The average price discount was 6%.
While the median sales price of newly sold homes in August dipped to $430,300 from July’s average of $436,700, the average sales price rose slightly to $514,000, compared to July’s average of $513,000, according to the Census.
In light of these challenges, 59% of builders offered various sales incentives in September, the highest percentage since April 2023, as rates continued to rise.
However, despite these efforts, homebuilders are expressing greater pessimism regarding the market. According to the NAHB/Wells Fargo Housing Market Index, more homebuilders rated housing conditions as poor compared to good, marking a second consecutive month of declining confidence in September.
The index measuring current sales conditions fell to 51 in September from 57 the previous month, while sales expectations for the next six months declined by 6 points to 49 in September. Additionally, the gauge measuring traffic of prospective buyers dropped by five points to 30.
NAHB chief economist Robert Dietz summarized the situation, remarking, “High mortgage rates are clearly taking a toll on builder confidence and consumer demand, as a growing number of buyers are electing to defer a home purchase until long-term rates move lower.”
In conclusion, the significant decline in new home sales in August underscores the formidable impact of escalating mortgage rates on the housing market, prompting both builders and buyers to navigate uncertain terrain ahead.
Source: Yahoo Finance
