published : 2023-09-27
New Home Sales Plunge in August Amid Rising Mortgage Rates
Spike in mortgage rates dampens consumer demand, causing an unexpected drop in new home purchases
Sales of new U.S. homes took an unexpected hit in August as a surge in mortgage rates weighed heavily on consumer demand.
The Commerce Department reported a staggering 8.7% plummet in new single-family home purchases, bringing the seasonally adjusted annual rate down to 675,000 units.
This unexpected drop, lower than the economists' projected rate of 700,000 units, highlights the adverse effects of rising mortgage rates on the housing market.
Despite the decline, new home sales remain 5.8% higher compared to the same time last year.
However, concerns over the commercial real estate market crashing still loom over the U.S. economy.
Leading industry experts such as Taylor Morrison CEO Sheryl Palmer discuss the challenges faced by the housing market on 'The Claman Countdown.'
Nicole Bachaud, Zillow senior economist, points out that while the pace of new home construction is slowing, there is still a substantial backlog of homes in the pipeline that will be hitting the market in the coming months.
This backlog offers potential opportunities for homebuyers to jump on the new construction train.
Existing homes on the market currently have an inventory that, at the current sales pace, would take approximately 7.8 months to exhaust.
Experts consider a pace of six to seven months to be indicative of a healthy housing market.
The decline in sales signifies that the resurgence in mortgage rates is pushing many potential buyers out of the market, contributing to a decline in prices last month.
The median price for a new home dropped to $430,000, down from $436,700 the previous month, though it remains significantly higher than pre-pandemic levels.
The Federal Reserve's aggressive interest-rate hike campaign significantly impacted mortgage rates, reaching above 7% last year for the first time in nearly two decades.
Currently, rates for the popular 30-year fixed mortgage hover around 7.19%, well above the 6.29% rate from a year ago and the pre-pandemic average of 3.9%.
The slower retreat of mortgage rates has made sellers who benefited from low rates prior to the pandemic hesitant to sell and buy another house at higher borrowing costs.
This lack of inventory weighs heavily on existing home sales, which witnessed a 0.7% decline in August compared to the previous month, reaching an annual rate of 4.04 million units.
Data released by the National Association of Realtors (NAR) suggests a 15.3% drop in existing home sales on an annual basis compared to August 2022.
Ben Ayers, Nationwide chief economist, states that the rising mortgage rates have eradicated the housing market's early 2023 momentum.
As the burden of mortgage payments climbs to unsustainable levels, the overall demand for single-family homes has plummeted.
This turn of events leaves potential homebuyers facing an uphill battle in current market conditions.