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New-home sales rose last month to a 16-month high, as builders filled in the gaps of a weak market for existing homes.
Sales of new single-family houses rose 4.1% from the prior month to a seasonally adjusted annual rate of 738,000, the U.S. Census Bureau reported on Thursday. September’s figure was up 6.3% from a year earlier and marked the fastest sales pace since May 2023.
The median sales price of new houses sold last month was $426,300, up 3.7% from August but nearly unchanged from one year ago. The number of unsold new homes on the market remained healthy at a seasonally adjusted 470,000, representing a supply of 7.6 months at the current sales rate.
The strong report for new-home sales comes just a day after the National Association of Realtors® reported that sales of existing homes slumped to a 16-year low in September. The divergence could be due to timing differences in the reports, with existing-home sales recorded at closing and new-home sales logged when a contract is signed.
Mortgage rates fell during the first half of September, reaching a two-year low, but then took a U-turn and began to rise unexpectedly. Average rates on the 30-year fixed stood at 6.44% last week after three straight weeks of increases, according to Freddie Mac.
“Mortgage rates have been falling, which have enticed some buyers to purchase a new home, but other buyers are still waiting on the sidelines for rates to come down further. Some would-be buyers may also be sitting out until after the election,” says Bright MLS Chief Economist Lisa Sturtevant.
Sturtevant expects to see more home shoppers in the market during the final three months of the year, especially if mortgage rates move back down toward 6%.
“But the new-home sector will be increasingly in competition with existing homes, as more homeowners are listing their home for sale,” she says. “Homebuilders may be forced to bring their prices down to attract buyers.”
The median price of a new home sold in September was roughly 5% higher than that of a previously owned home. In comparison, new-home prices were 20% to 30% higher than existing-home prices from 2021 through early 2023, says Sturtevant.
To meet affordability concerns, many builders have pivoted to smaller, more affordable homes. Builders can also offer buyer incentives, such as rate buy-downs, that are typically not available to buyers of existing homes.
With a more bearish view, Ruben Gargallo Abargues, an assistant economist with Capital Economics, projects that new-home sales will not rise much through the end of the year.
Gargallo expects mortgage rates to rise to 6.5% by year-end, noting that the bond yields that normally influence mortgage rates have risen in recent weeks.
“That move is seemingly linked to the rise in Donald Trump’s odds of winning the election so, if Trump were to win in November, mortgage rates could finish the year higher than we expect, and likewise new home sales could be weaker,” he writes in a client note.
With less than two weeks to go before the election, the 10-year Treasury yield is up 45 basis points from a month ago. Investors may be responding to the possibility of a “red wave” that would put the White House and Congress under Republican control, an outcome they see as potentially pushing up government deficits.