US real estate has been cooling as interest rates normalize, and new homes are no exception. US Census data shows new home sales fell once again in August, while inventory climbed. The segment is now firmly in a price correction, and experts see weak sales continuing in the near-future.
US New Home Sales Fell, Weaker Than Expected
US home sales aren’t as weak as last year but they’re still losing steam. The seasonally adjusted annual rate (SAAR) of new homes fell 8.7% to hit 675,000 sales in August. Despite an upward revision of July home sales helping to soften the August drop, sales were weaker than expected.
“New home sales were weaker than expected in August, although sales for July were revised higher,” explains Nancy Vanden Houten, Lead US Economist at Oxford Economics.
Adding, “We expect new home sales to come under pressure in the months ahead as labor markets soften and home buying affordability worsens due to the ongoing climb in mortgage rates to a multi-decade high.”
US New Home Prices Have Dropped Nearly 14% Since Peaking
The weakness in sales is spreading to prices, despite elevated input costs. The median sale price fell 1.4% to $430,300 in August, representing a 2.2% drop from last year. New home prices are now 13.7% below the all time high reached in October. Considering a correction is a decline of at least 10%, it’s safe to say that new home prices are firmly in correction territory.
US New Home Prices Are Now Firmly In Correction Territory
The national median sale price of a new home in the United States, in US Dollars.
Source: US Census Bureau; U.S. HUD; Better Dwelling.
It’s worth noting that new home prices have demonstrated more resilience than existing-homes. To improve affordability, either interest rates or new home prices need to come down fast.
US New Housing Supply Is On The Rise, Weak Sales Expected To Continue
Supply improvements aren’t helping with softening prices. The SAAR of new homes for sale at the end of August climbed 2.5% to 443,000 units. Combined with falling sales, this helped boost the months of supply by 1.2 months to 8.3 months. Over six months of supply is considered a buyer’s market, where home prices are expected to fall in the near term.
Houten sees higher rates hurting new home sales, but not to the extent seen with existing homes. “While we expect higher rates to hurt new home sales, we think they will be more resilient than existing home sales as builders seem willing to scale up their use of incentives to motivate sales,” she explains.
