Industry responds to surprising surge in new residential sales despite rising rates
The US housing market delivered a twist with new home sales surging 12.3% in September – a rate not seen since February 2022 – despite record-high mortgage rates.
According to the latest data from the Census Bureau, sales of newly built, single-family homes reached a seasonally adjusted annual rate of 759,000. This marks a staggering 33.9% increase from the same period last year.
The new residential sales report has sparked varied reactions from housing industry experts, reflecting the complex dynamics of the current housing market.
Fannie Mae chief economist Doug Duncan expressed surprise at the robust figures, noting, “This was above our expectation and points to continued resilience in the new home sales market.” However, he also cautioned about the volatility of the series, referencing the 8.2% dip in August.
“The year-over-year change in the median sales price of negative 12.3% was the largest decline since February 2009,” Duncan added. “Though this measure does not consider changes in the geographic mix of sales, it is consistent with homebuilders offering larger concessions to drive sales and further changing the mix of homes being offered to more modest products.”
Yet, with rising mortgage rates and a dip in homebuilder optimism, Duncan anticipates a softening in new sales as the year progresses.
Kelly Mangold, principal at RCLCO Real Estate Consulting, attributes the sales spike to the start of the school year and the severely limited inventory in the resale market. She emphasized the impact of the constrained resale inventory, stating, “New homes remain one of the only available options.” Mangold also touched upon the Federal Reserve’s anticipated interest rate hike, suggesting that the pent-up demand in the housing market is pushing many to purchase homes despite the challenging conditions.
The inventory of new single-family homes in September stood at 435,000, a 5.4% decrease from the previous year. The median new home sale price was pegged at $418,800, reflecting a 3.3% monthly decrease and a 12.3% annual drop.
“With one more Fed interest rate hike expected for the year, interest rates are not anticipated to drop anytime soon,” Mangold said. “The constraints in the housing market have created a significant amount of pent-up demand, as more and more households are living in homes they may have outgrown and are deciding to buy despite current market conditions. Sales activity increased the most in the south, a region that continues to outperform due to availability of land, population and job growth, and a relatively lower cost-of-living.”
Alicia Huey, chairman of the National Association of Home Builders (NAHB), also voiced concerns about the nearing 8% mortgage rates and their potential to dampen the market in the upcoming months. She highlighted the dual impact of these rates, affecting both buyers and builders.
“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,” Huey said. “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.”
Echoing Huey’s sentiments, Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis, mentioned the trend of homeowners opting to stay in their current homes due to favorable mortgage rates.
“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,” she added.
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