Sales of newly built homes in August experienced an 8.7% decline from July, resulting in a seasonally adjusted annualized pace of 675,000 units, as reported by the U.S. Census Bureau.
These figures indicate the slowest pace since March, although sales were still 5.8% higher compared to August 2022.
The Census Bureau counts are based on signed contracts during the month, and the increase in mortgage rates also played a factor. The average rate on the 30-year fixed loan reached 7.48% by August 22, up from 7.04% at the end of July, according to Mortgage News Daily.
“Due to stretched affordability, it is unlikely that demand will recover in the near future, causing new home sales to decline from 675,000 annualized in August to 600,000 annualized by the end of the year,” wrote Imogen Pattison, assistant economist at Capital Economics, providing an outlook on the market.
August saw a median price drop of 2% for newly built homes, with the average price being $430,300. To incentivize buyers, homebuilders have been lowering prices and offering additional benefits, such as reduced mortgage rates. These incentives had been reduced during the spring when rates were below 7%, but they have now been reintroduced.
Lennar, one of the nation’s leading homebuilders, recently reported strong earnings for a quarter that didn’t yet experience the highest mortgage rates. Lennar Chairman Stuart Miller acknowledged the utilization of buyer incentives in the company’s earnings release.
“Homebuilders have continued to use incentives, including buy-downs, to offset rising interest rates and limited capital, which impacts affordability,” noted Miller.
While homebuilders have benefited from the scarcity of existing homes for sale, the impact of higher interest rates may outweigh this advantage. According to the National Association of Home Builders’ monthly survey, builder sentiment dropped into negative territory in September for the first time in seven months.
In September, 32% of builders reported cutting prices, compared to 25% in August. This marked the highest percentage of builders reducing prices since December 2022, when 35% were doing so. The average price reduction amounted to 6%.
“High mortgage rates are evidently affecting builder confidence and consumer demand, as more buyers are choosing to delay home purchases until long-term rates decrease,” stated Robert Dietz, NAHB’s chief economist, expressing concerns about the market.
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