Affordability Challenges Push New Home Sales Lower

High mortgage rates and economic uncertainty continued to keep potential home buyers on the sidelines and constrain new home sales in September.

Sales of newly built single-family homes decreased 0.6% in September to a seasonally adjusted annual rate of 676,000, following a downwardly revised August estimate, according to newly released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The pace of new home sales was 5.3% lower than a year earlier.

“Affordability remains a significant hurdle for prospective home buyers,” said Bill Owens, chairman of the National Association of Home Builders (NAHB) and a home builder and remodeler from Worthington, Ohio. “Builders continue to offer incentives and adjust pricing to attract buyers, but elevated mortgage rates and high home prices are limiting the number of households that can afford to purchase a home.”

“The decline in new home sales is consistent with softer builder sentiment and highlights the continued sensitivity of housing demand to financing costs,” said Danushka Nanayakkara-Skillington, NAHB assistant vice president for forecasting and analysis. “Sustained improvements in mortgage rates and housing affordability would help maintain demand.”

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 676,000 units is the number of homes that would sell if this pace continued for the next 12 months.

New single-family home inventory in September fell to 476,000 units, down 1% from August, and down 2.3% compared to a year ago. This represents an elevated 8.4 months’ supply at the current building pace. Completed, ready-to-occupy inventory consisted of 111,000 homes in September.

The median new home sales price in September increased 3.9% from August to $400,400 but was down 3.9% from a year ago.

Regionally, on a year-to-date basis, new home sales were down 0.5% in the Midwest, 1.3% in the South and 9.2% in the West. New home sales were up 2.3% in the Northeast.