Elevated mortgage rates and challenging affordability conditions pushed new home sales down to their weakest stretch since March.
Indeed, after a boost in July, the sales pace of new homes slowed in August, according to data published on Wednesday by the U.S. Census Bureau and the Department of Housing and Urban Development (HUD).
“This month, the sale of homes not started increased, while under construction and completed fell,” First American Deputy Chief Economist Odeta Kushi noted.
Meanwhile, mortgage applications for new home purchases increased 4% between July and August, the strongest pace of sales in three months.
“Homebuilders are still benefiting from very low inventory of existing homes for sale, which has driven more buyers to consider new construction,” Bright MLS Chief Economist Lisa Sturtevant said. “But with mortgage rates elevated and home prices high, affordability is a growing concern for home buyers.”
The median new home sale price in August was $430,300, down roughly 2% compared to a year ago. The use of builder incentive use and a shift towards building slightly smaller homes are responsible for prices trending downwards, according to the National Association of Home Builders.
Meanwhile, 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. To keep in mind. a measure near a 6 months’ supply is considered balanced.
Of the total home inventory, including both new and resale homes, newly built homes represent an elevated share of 31% of those available for sale, according to the NAHB. Additionally, nearly 16% of total home sales in August were new homes.
In August, the inventory of unsold new homes is at its highest since December, Holden Lewis, home expert at NerdWallet said. He expects builders to offer more incentives to get them sold.
“Look for a resurgence of mortgage-rate buydowns, in which the sellers give buyers a break on the monthly payments for the first one to three years,” Lewis added.