Builders offer incentives to move inventory as mortgage rates briefly dip
A surprising number of homebuyers signed contracts for newly built homes in September, with contract signings jumping 4.1% from August, government data showed.
This brings the seasonally adjusted annual rate of new home sales to 738,000, up 6.3% from last year, according to the latest Department of Housing and Urban Development and the Census Bureau report.
The rise in new home sales came shortly after the Federal Reserve’s recent interest rate cut – the first in four years – which brought mortgage rates down to 6.18% from August’s 6.5%.
“Despite challenging affordability conditions, home builder confidence edged higher in October as they anticipate that mortgage rates will gradually, in an uneven manner, moderate in the coming months,” said Carl Harris, chairman of the National Association of Home Builders (NAHB).
Builders appear optimistic about potential demand, especially as the need for more housing persists.
“There is a significant need for additional housing supply, as many prospective home buyers are entering the market,” Harris added.
However, mortgage rates ticked up again in October, leading Jing Fu, NAHB’s director of forecasting, to predict a possible slowdown in new home sales in the coming months.
“Following the Fed’s actions in September, mortgage rates fell to 6.18%, from 6.5% in August,” Fu noted. “However, new home sales will likely weaken in October due to a recent rise in long-term rates.”
New home inventory reached 470,000 units in September, an 8% increase from last year and equating to a 7.6-month supply at current sales rates. Roughly 108,000 of these homes were completed units, the highest level since 2009, prompting builders to offer incentives to get these homes sold.
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“Builders prefer to sell new homes while they’re under construction,” said Holden Lewis, home and mortgages expert at NerdWallet. “But the number of completed, empty houses has been rising. So builders are offering incentives, such as mortgage rate buydowns, to get those completed homes sold.”
The median price for a new home in September was $426,300, virtually unchanged from a year ago, according to NAHB’s report. Notably, homes priced below $300,000 made up 17% of new home sales in September, up from 14% a year prior.
Builder price incentives appear to be working as new home sales increase, but inventory levels suggest that more incentives may continue.
“Look for builders to continue offering incentives to bargain-seeking buyers,” Lewis added.
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