Posted: January 9th, 2024
Hello,
In a surprising turn of events, new home sales soared to a 19-month high in September, erasing the previous month's decline and marking a significant 12.3% month-over-month increase. The persistent shortage of resale supply seems to be driving buyers towards new builds, even as mortgage rates approach 8%.
According to data from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, the seasonally adjusted annual rate of new single-family home sales reached 759,000 units in September, reflecting a substantial 33.9% year-over-year increase. This surge exceeded economists' expectations, with a Reuters poll projecting a September rate of 680,000 units.
Intriguingly, this surge in sales was accompanied by a double-digit year-over-year decline in prices, with the median price for a newly built home dropping more than 12% to $418,800 – the most significant dip since 2009. Builder adaptations, including discounts and incentives, played a pivotal role in this price adjustment, as highlighted by a recent survey from the National Association of Home Builders (NAHB). The survey revealed that 62% of builders offered incentives to buyers in October, matching a high set in December 2022.
Builders are also strategically responding to the demand for new homes by adjusting scale, building smaller homes to offset the impact of higher interest rates. Danushka Nanayakkara-Skillington, the NAHB’s assistant vice president for forecasting and analysis, explained that the surge in new home sales is a consequence of low existing home inventory rates, as homeowners with attractive mortgage rates opt to stay put.
However, the article also emphasizes a potential concern regarding the impact of rising interest rates on the market. While new construction is currently a favored option due to the lack of existing inventory, approaching 8% mortgage rates are expected to slow down the market in the coming months, worsening affordability conditions for both buyers and builders. Alicia Huey, chairman of the NAHB, warned that higher interest rates increase housing costs for both parties due to elevated expenses for financing construction loans.
It is worth monitoring the resilience of the new home market in the face of increasing interest rates and the growing share of new home inventory that has yet to break ground. The percentage of such properties rose to 24.1% in September, reaching its highest level since 1999, posing potential challenges for the market's sustainability. As a mortgage broker, staying informed about these dynamics is crucial for navigating the evolving landscape of real estate transactions.
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Warm regards,
Darrell Teddick
Your Mohawk Mortgage Man