Purchase activity hits highest level in over a year
Lower mortgage rates and more listings helped boost the US new-home market in July, with purchase activity jumping to its highest level for over a year.
Government data released Friday showed that signings on new single-family homes spiked by 10.6% last month, setting an annual clip of 739,000 in its best performance since May 2023.
That result, which exceeded expectations of economists surveyed by Bloomberg, reflected a dip in mortgage rates in recent weeks and high inventory levels across the country. The average rate on a 30-year fixed mortgage currently sits at 6.5%, while the number of available homes nationally is near its highest level for 16 years, at 462,000.
That glut of supply has also helped keep home prices in check. The average price of a new home slipped by 1.4% last month compared with the same time last year, falling to $429,800, with the 7.5 months of available supply remaining above the levels seen during the COVID-19 pandemic.
First American deputy chief economist Odeta Kushi said builder incentives appeared to have boosted the new-home market in recent months. “Given 86% of existing homeowners have a mortgage rate below 6%, they’re not financially incentivized to sell in today’s elevated rate environment,” she commented in a release Friday.
“In the resale market, the existing homeowner will simply choose not to sell if they don’t have to, whereas builders need to move their inventory. To do this, builders are offering incentives, such as mortgage rate buydowns, to entice buyers off the sidelines. You may not be able to find an existing home for sale, but you can build one.”
Still, Kushi noted challenges facing the new-home market – namely, a grim affordability outlook for potential buyers confronted with a “double whammy” of high mortgage rates and prices.
The housing market also remains “structurally underbuilt,” she said, “and existing-home inventory remains below historical levels, so there continues to be a long-run need for more construction.”
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