Home Mortgage New home sales dropped in August as mortgage rates climbed

New home sales dropped in August as mortgage rates climbed

by Joshua Garcia

New home sales in the United States took a dip in August, as mortgage rates reached a high of 7% – the highest in over 20 years. According to a joint report from the US Department of Housing and Urban Development and the Census Bureau, sales of newly constructed homes fell by 8.7% in August to a seasonally adjusted annual rate of 675,000. This is down from a revised rate of 739,000 in July. However, when compared to the same period last year, sales were still up by 5.8%.

The surge in new construction has attracted buyers who have been frustrated by the historically low supply of existing homes. However, affordability concerns remain a hurdle for many potential buyers. Homeowners with mortgage rates of 3% or 4% are hesitant to sell their homes and buy new ones at much higher rates. The Federal Reserve’s efforts to address inflation have resulted in mortgage rates lingering around 7%.

Despite the decline in sales, the median price of new construction homes in August was $430,300, a slight decrease from the median price of $436,600. This represented a 2.3% drop compared to the previous year. It marked the fifth consecutive month of year-over-year price drops.

Kelly Mangold of RCLCO Real Estate Consulting acknowledged that affordability remains a challenge due to the tight housing market, and conditions are unlikely to improve until interest rates or pricing comes down. Builders have responded to the shifting market by lowering prices and offering concessions, upgrades, and more attractive builder financing options. Lisa Sturtevant, chief economist at Bright MLS, explained that builders have also shifted their focus to smaller, less expensive homes to meet the strong demand for starter homes and homes for first-time buyers. However, it can be challenging for builders to turn a profit while constructing starter homes.

One obstacle faced by builders is local zoning laws that dictate lot sizes, setbacks, and design features, making it financially infeasible to build anything but the largest houses the market can support. Despite these challenges, the available inventory of new construction homes continues to attract home buyers frustrated by the lack of existing homes for sale.

At the end of August, the seasonally adjusted estimate of new houses for sale was 436,000, representing a supply of 7.8 months at the current sales rate. This indicates that there is still a substantial supply of new construction homes available for buyers.

In conclusion, while new home sales in the US dropped in August due to high mortgage rates, the market continues to see strong demand. Affordability remains a concern for buyers, but builders have adjusted by lowering prices and offering attractive financing options. Despite challenges posed by local zoning laws, the supply of new construction homes remains appealing to buyers amidst a shortage of existing homes for sale.

related posts