Newly Built Home Sales Decline in August Amid Rising Mortgage Rates
In August, sales of newly constructed homes in the United States experienced a notable decline, contracting by 8.7% compared to July, resulting in a seasonally adjusted annualized pace of 675,000 units, as reported by the U.S. Census Bureau. This marks the slowest pace recorded since March, albeit still representing a 5.8% increase compared to August of the previous year.
The Census Bureau’s data is based on signed contracts during the month, and the notable factor contributing to this downturn has been the significant surge in mortgage rates. The average rate for the widely popular 30-year fixed loan, which concluded July at 7.04%, had risen to 7.48% by August 22.
Imogen Pattison, Assistant Economist at Capital Economics, weighed in on the situation, stating, “Very stretched affordability means demand will be unable to recover in the near term, causing new home sales to fall back from 675,000 annualized in August to 600,000 annualized by the end of the year.”
The median price of newly built homes sold in August stood at $430,300, reflecting a 2% decline when compared to the same month in the preceding year. Homebuilders have responded to market conditions by not only lowering prices but also offering additional incentives, such as mortgage rate buy-downs. While these incentives were scaled back in the early part of the year when rates dipped below 7%, builders are now ramping them up once again.
Lennar, one of the nation’s largest homebuilders, reported robust earnings for a quarter preceding the peak in mortgage rates. However, Chairman Stuart Miller acknowledged the use of buyer incentives in the company’s release, noting that “homebuilders continued to use incentives, including buy-downs, to offset rising interest rates and tighter capital, which limit affordability.”
Despite the benefits reaped by homebuilders due to the constrained supply of existing homes available for sale, this advantage may soon be outweighed by the impact of higher interest rates. In a notable shift, builder sentiment, as reflected in the National Association of Home Builders’ (NAHB) monthly survey, entered negative territory in September, marking the first such occurrence in seven months.
Throughout September, 32% of builders reported reducing prices, an increase from 25% in August. This represents the highest proportion of builders lowering prices since December 2022, when 35% were doing so. On average, the price cuts amounted to 6%.
Robert Dietz, Chief Economist at NAHB, commented on the situation, stating, “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.”
