New home sales vaulted to a 19-month high in September as the obstinate resale supply shortage drove buyers to new builds even as mortgage rates inched closer to 8%.
According to figures from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, sales of new single-family homes rose to a seasonally adjusted annual rate of 759,000 units in September, up 12.3% month over month and up 33.9% year over year. The monthly surge was the largest in more than a year and September’s annualized pace was the fastest since February 2022. The August sales rate received an upward bump of 1,000 extra units as well, bringing it to 657,000.
The surge in sales smashed expectations, with economists polled by Reuters anticipating a September rate of 680,000 units.
As sales soared during the month, prices dipped, with adjustments by builders leading to the biggest yearly median home price drop since 2009. The median price for a newly built home was $418,800, falling more than 12% year over year and down 3.3% from August.
Various forms of builder proactivity appear to account for much of the price decline. For one, builders are coaxing more buyers from the sidelines with discounts and other incentives to stem the tide of worsening affordability. A recent survey from the National Association of Home Builders (NAHB) showed that 62% of builders offered incentives to buyers in October, matching a recent high set in December 2022.
Danushka Nanayakkara-Skillington, the NAHB’s assistant vice president for forecasting and analysis, noted that builders are also adapting by changing scale.
“New home sales surged in September largely due to the low existing home inventory rate, as many homeowners with attractive mortgage rates are electing to stay put rather than purchase a move-up home with a much higher interest rate,” she said. “To compensate for this high interest rate environment, more builders are building smaller homes, which has resulted in a decline in the median new home price.”
Notably, builders are also responding to the demand in new homes by putting out more supply. The inventory of new homes for sale saw a slight September bump to reach 435,000 units. Stout sales activity, however, is cutting into inventory, which stood at a supply of 6.9 months at the current rate of transactions.
One figure that bears watching is the share of new home inventory that has yet to break ground. That percentage rose to 24.1% in September, and the count of such properties grew to 105,000, reaching its highest level since 1999.
Also, despite the current resilience in the new home market, it’s worth keeping an eye on how interest rates flirting with 8% will impact activity.
“While more buyers are turning to new construction because of a lack of existing inventory, higher mortgage rates that are approaching 8% are expected to slow the market in the coming months as affordability conditions continue to worsen,” said Alicia Huey, chairman of the NAHB. “Higher interest rates not only raise the cost of housing for buyers but for builders as well because of increased costs for financing construction loans.”