Rising mortgage rates approaching 7% along with declining builder sentiment stemming from stubbornly high construction costs and weakening consumer demand pushed new-home sales down at a double-digit rate in September.
Following a brief uptick in August, sales of newly built, single-family homes in September fell 10.9% to a 603,000 seasonally adjusted annual rate, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.
“Builders continue to face lower buyer traffic due to declining affordability conditions as the housing downturn continues,” said Jerry Konter, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Savannah, Ga. “Builder sentiment has declined for 10 consecutive months. The entry-level market in high-cost areas has been particularly affected, with growing numbers of first-time and first-generation buyers priced out of the market.”
“New home sales are down 14.3% on a year-to-date basis compared to 2021,” said NAHB Chief Economist Robert Dietz. “Moreover, sales are now down 1.9% on the same basis compared to 2019 levels that were prior to the Covid-related changes to interest rates.”
A new home sale occurs when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the September reading of 603,000 units is the number of homes that would sell if this pace continued for the next 12 months. Notably, the new home sales data do not incorporate cancellations, which according to NAHB survey data have more than doubled compared to a year ago.
New single-family home inventory remained elevated at a 9.2 months’ supply (of varying stages of construction). A measure near a 6 months’ supply is considered balanced. The count of homes available for sale, 462,000, is up 23.2% over last year. Of this total, only 56,000 of the new home inventory is completed and ready to occupy. The remaining have not started construction or are currently under construction.
Reflecting rising construction costs, the median new home price in August was $470,600, up 13.9% from a year ago. However, NAHB surveys indicate that a quarter of builders are now cutting prices, thus recent months’ price data reflects a composition change, with sales lost at the low end of the market pushing the median price higher. In September 2022, there were 20,000 sales priced below $300,000. In September 2021, sales in this price range totaled only 6,000.
Regionally, on a year-to-date basis, new home sales fell in all four regions, down 8.1% in the Northeast, 21.2% in the Midwest, 12.1% in the South and 17.6% in the West.