New home sales may have hit a rates-related speed bump
August numbers were down nearly 5% from July, but came in better than a year ago and are still expected to outperform existing home sales in the coming months.
Sales of new homes slipped in August as home buyers appeared to wait and see what would happen with interest rates.
New home sales came in at a seasonally adjusted annual rate of 716,000 last month, according to estimates from the U.S. Census Bureau. That's down 4.7% compared to July but still robust compared to a year ago when the annual rate was at 652,000.
The median price for the new homes sold last month was $420,600, down 4.6% compared to a year ago. The drop was due to builder price incentives as buyers dealt with affordability challenges, said Robert Dietz, chief economist at the National Association of Home Builders.
What's ahead: With 30-year fixed-rate mortgages hovering around 6%, home builders could see more buyer traffic this fall, said Lisa Sturtevant, chief economist at Bright MLS. It'll still be challenging to get them to sign contracts, however.
"First, buyers who are back in the market will find they have more options," Sturtevant said, noting that inventory of existing homes has increased. "Second, historically, lower mortgage rates tend to lead to an increase in price growth, but this year affordability is still a major constraint on the market. So, while there may be more buyers in the market, home builders might find that consumers' purchasing power has not increased."
The new-home market will likely continue to outperform the existing-home market over the near term because builders have more flexibility when it comes to rates, said Odeta Kushi, deputy chief economist at First American.
"The long-term housing shortage, lower mortgage rates, and builders' ability to offer incentives will help to buoy new single-family sales," Kushi said.
Inventory: For new homes the months' supply came in at 7.8 in August. That's higher than July, but for much of the year supply has been more than 8 months.
Dietz said that while 7.8 months supply is considered elevated under normal market conditions, existing homes are at 4.1 months, putting the overall number at 4.7 months.
"This measure is expected to increase as more home sellers test the market in the months ahead," Dietz said.