By Kerry Smith
Rising interest rates not only make homes more expensive for buyers, they raise the cost of building materials.
WASHINGTON – Mortgage rates and affordability challenges pushed new-home sales lower in August, to their weakest rate since March.
August sales of newly built, single-family homes fell 8.7% to a 675,000 seasonally adjusted annual rate from an upwardly revised reading in July, according to data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. Year-to-year, however, the pace of new home sales was up 5.8%.
“Higher interest rates price out demand, as seen in August, but also increase the cost of financing for builder and developer loans, adding another hurdle for building,” says Alicia Huey, chairman of the National Association of Home Builders (NAHB).
NAHB Chief Economist Robert Dietz says August mortgage rates above 7% had an impact.
“While some builders were able to offset that effect via mortgage rate buydowns, rates moved higher this month, suggesting the pace of new home sales will weaken further” once September data comes out, he says.
A new home sale occurs when a sales contract is signed or a deposit accepted. The home can be in any stage of construction: not yet started, under construction or completed. After adjusting for seasonal effects, the August reading of 675,000 units is the number of homes that would sell if August’s pace continued for the next 12 months.
Inventory and prices
New single-family home inventory in August was 436,000, down 5.2% compared to a year ago, representing a 7.8-months’ supply at the current building pace. A measure near a 6 months’ supply is considered balanced. Of the total U.S. home inventory – both new and resale homes – newly built homes represent a higher-than-usual share at 31% of listings. And in August, almost 16% of all home sales were new homes.
“Builders are being more cautious about managing their inventory in this rising rate environment,” Dietz says. “A year ago, 10% of the new home inventory listed for sale consisted of homes that had not yet started construction. That share has now risen to 17% of the total inventory.”
The median new-home sale price in August was $430,300, down roughly 2% year-to-year. The price decline is due, in part, from builders using incentives plus a shift towards building slightly smaller homes.
Regionally, on a year-to-date basis, new home sales rose 4.8% in the Northeast, 4.4% in the Midwest and 1.9% in the South. In the West, new-home sales fell 0.5%.
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