New home sales in the United States surged higher in September from the month before, even as mortgage rates remained over 7%, making financing a home costlier and pushing people out of the market.
Sales of newly constructed homes jumped 12.3% in September to a seasonally adjusted annual rate of 759,000, from a revised rate of 676,000 in August, according to a joint report from the US Department of Housing and Urban Development and the Census Bureau. Sales were up 33.9% from a year ago.
This represents the fastest pace of sales since February 2022 and easily exceeds analysts’ expectations of a sales pace of 680,000.
Sales of existing homes have been trending down since February and are down 20% year to date in September from a year ago. There is an ongoing inventory and affordability crunch that has homeowners with mortgage rates of 3% or 4% reluctant to sell and buy another home at a much higher rate. In August, rates topped 7% and have lingered there as the Federal Reserve continues to address inflation.
The average rate for a 30-year, fixed-rate mortgage was 7.63% last week, according to Freddie Mac, and there are indications it could continue to climb.
“With one more Fed interest rate hike expected for the year, interest rates are not anticipated to drop any time soon,” said Kelly Mangold of RCLCO Real Estate Consulting.
New construction has been an appealing alternative, attracting determined buyers frustrated by the historically low supply of existing homes. Still, affordability concerns remain.
“The constraints in the housing market have created a significant amount of pent-up demand, as more and more households are living in homes they may have outgrown and are deciding to buy despite current market conditions,” said Mangold.
According to the report, new home sales activity increased the most in the south, “a region that continues to outperform due to availability of land, population and job growth, and a relatively lower cost of living,” said Mangold.
While new home sales are a much smaller share of the overall sales market than existing home sales, the inventory picture is rosier for new construction homes.
The seasonally adjusted estimate of new homes for sale at the end of September was 435,000. This represents a supply of 6.9 months at the current sales pace.
By comparison, there were 1.13 million existing homes for sale at the end of September, or the equivalent of 3.4 months’ supply at the current monthly sales pace.
Typically, the ratio of existing homes to new homes has been closer to 5 to 1, but lately it has been closer to 2 to 1, according to the National Association of Realtors.