Sales of new U.S. single-family homes surged to a 19-month high in September as builders offered price discounts and other incentives to woo buyers, but mortgage rates approaching 8% could curb demand.
The larger-than-expected increase in sales last month reported by the Commerce Department on Wednesday showed that the new housing market continued to be supported by a chronic shortage of previously owned houses. The bulk of homes sold were in the $150,000 to $499,999 price range.
"Homebuilders are offering buyers interest rate buydown incentives that funnel demand into the newly built segment," said Bill Adams, chief economist at Comerica Bank in Dallas. "They are also shrinking floorplans to boost affordability. That is leading to very different dynamics in different parts of the housing market."
New home sales rebounded 12.3% to a seasonally adjusted annual rate of 759,000 units last month, the highest level since February 2022. August's sales pace was revised up to 676,000 units from the previously reported 675,000 units.
Economists polled by Reuters had forecast new home sales, which account for a small share of U.S. home sales, rebounding to a rate of 680,000 units.
New home sales are counted at the signing of a contract, making them a leading indicator of the housing market. They, however, can be volatile on a month-to-month basis. Sales accelerated 33.9% on a year-on-year basis in September.
In September, new home sales jumped 22.5% in the Northeast and increased 14.6% in the densely populated South. They rose 7.5% in the West and advanced 4.7% in the Midwest.
A limited supply of previously owned houses is driving demand for new housing and homebuilding. Data last week showed home resales dropped to a 13-year low in September as soaring mortgage rates and tight supply combined to sideline first-time buyers from the market.
The rate on the popular 30-year fixed mortgage surged to a nearly 23-year high of 7.63% last week, according to data from mortgage finance agency Freddie Mac.
"These smart moves are doing more than just grabbing buyers’ attention, they're making homeownership a reality for many who might have been left out in the cold given the current market conditions," said Dan Hnatkovskyy, co-founder and CEO of NewHomesMate, a marketplace for new construction homes. "This helping hand is not only making things easier for buyers but is also bringing some much-needed movement to the market."
The median new house price in September was $418,800 a 12.3% drop from a year ago. Sales were concentrated in the $150,000 to $499,999 price range. There was also a notable increase in sales in the $500,000 to $749,000 price band.
There were 435,000 new homes on the market at the end of last month, up from 432,000 in August. At September's sales pace it would take 6.9 months to clear the supply of houses on the market, down from 7.7 months in August.
The housing market likely stabilized in the third quarter, thanks to strong homebuilding and new home sales.
Economists expect the government's snapshot of gross domestic product for the July-September quarter to show residential investment rebounding after contracting for nine straight quarters.
