New-home sales retreated slightly in September, ending the month at a seasonally adjusted annual rate of 959,000 according to the U.S. Census Bureau and the Department of Housing and Urban Development.
That’s a backtrack of 3.5% from the revised August rate of 994,000, reversing that month’s uptick of 3.0%. Expectations, per Wells Fargo Securities’ Economics Group, had called for sales to remain unchanged from August’s pace, originally at 1.011 million units prior to revision.
It’s the first time that new-home sales fell back since April, marking one of the few negative surprises the housing market has seen since regaining its sizzle following initial COVID-related shocks. On the whole, however, new-home sales remain a bright spot within the still-strong housing landscape; consider, for example, that September sales figures were still up 32.1% year over year.
“With sales up 32 percent from a year ago, the demand for new single-family homes remains strong as interest rates are at historic lows,” said Chuck Fowke, chairman of the National Association of Home Builders (NAHB).
Figures from earlier in the quarter suggested that the summer’s new-home sales spike was due to level off, said NAHB chief economist Robert Dietz.
“The pace of new home sales growth over the summer was going to slow given that the gap between sales and single-family construction reached an all-time high in August,” said Dietz. “Indeed, September sales of new homes that had not started construction were up 47 percent compared to a year ago.”
Wells Fargo economists noted that tighter loan standards may also be slowing the surge.
“It is no secret that this economic recovery has been notoriously uneven, with professional workers who can easily work remotely seeing an earlier and stronger bounce-back in employment and income,” wrote the bank’s Economics Group. “Our sense is that the influx of these buyers is one of the reasons the bulk of mortgage originations since the shutdowns have been among buyers with relatively high FICO scores.
“This may be a sign that the pool of potential homebuyers is not as deep as it would be in a more typical recovery and may mean that new-home sales have topped out for now.”
Nevertheless, with construction sentiment high and builders reporting steady prospective buyer traffic, the new-home market is poised to maintain a high level of activity. New-home sales are still 16.9% ahead of their pace from one year prior, with the largest percentage gains seen in the Midwest (where sales are up 25.9%) and Northeast (up 22.5%).
Prices continue to reflect heightened demand, with September’s median sales price at $326,800. That’s up 3.5% from $315,700 in September 2019. Material costs continue to put upward pressure on prices, according to Fowke, with the recent price spike in lumber continuing to impact builders.
Inventory crept up to a supply of 3.6 months at the current sales pace, with 284,000 new single-family homes available for sale. It’s the third straight month that inventory has been under four months’ supply, although the NAHB noted additional construction gains ahead.
