Sales of new single-family homes tumbled in September, despite rebounding the month prior, as would-be buyers continue to shy away from rapidly rising mortgage rates.
The volume of sales came in at a seasonally adjusted annual rate of 603,000, down 10.9% from the previous month’s revised pace of 677,000 and 17.6% below year ago levels, the Department of Housing and Urban Development and the Census Bureau reported Tuesday. The figures exceeded the Bloomberg consensus estimate of 580,000 in annualized new home sales.
Still, the decline in new home sales underscore how quickly the market has shifted from its pandemic-induced frenzy to one teetering on recession. Buyers now face a triple whammy: inflation, elevated home prices, and rising mortgage rates that are eating away at their budgets.
"Sales continue to trend lower on high interest rates and declining affordability, particularly for first-time buyers," Robert Dietz, chief economist for the National Association of Home Builders, told Yahoo Money. "Year to date, sales are down almost 14% for 2022. There have been 10 straight months of declines for builder sentiment, so production declines are expected to continue into 2023."
The Federal Reserve raised its short-term benchmark funds rate by three quarters of a point to fight rampant inflation in September, its fifth rate hike of the year – and likely not the last. That’s boosted the yield on the 10-year Treasury, which fixed mortgage rates tend to track.
That pushed the 30-year fixed rate mortgage over 6% in September for the first time since 2008 and the rate marched up a full percentage point in the span of four weeks, ending the month at 6.70%.
But for many, the ability to purchase a home was gone long before rates breached 6%. In August, housing affordability had fallen to its worst level in 37 years when mortgage rates were at 5.89%, mortgage technology and data provider Black Knight reported.
The median sales price of newly constructed homes in September was $470,600, up from $436,800 reported the month prior. According to the report, the average sales price was $517,000, down from $521,800 reported in August.
“In today’s market, it’s easier to rent a single-family home in many cases than it is to buy,” Taylor Marr, deputy chief economist at Redfin, told Yahoo Money. “First-time buyers are the most impacted in terms of affordability, but we’re hearing from agents on the ground that even move-up buyers are impacted. They’re just disappearing from the market.”
The report adds to other signs of a cold housing market.
The number of previously owned homes for sale fell for the eighth straight month at the end of September to 1.25 million, the National Association of Realtors said, down 2.3% from August and 0.8% from the previous year.
Homebuilder sentiment also dropped for the 10th consecutive month in October, its weakest level since 2012, excluding the two-month period in the spring of 2020 at the beginning of the pandemic.
New single-family home starts dropped by 4.7% to an annual rate of 892,000 in September, the National Association of Home Builders reported earlier this month, its lowest point since May 2020.
And roughly 60,000 home-purchase agreements were canceled in September, Redfin found, equal to 17% of homes that went under contract that month.
It’s unlikely inventory levels will improve anytime soon as home price reductions become more common and potential sellers are turned off my higher rates.
“The sellers’ market is not what it used to be,” Marr said. “They wouldn’t get as much for their home, even if they can get a good deal on the purchase, they would probably have to take a much greater loss on the sale and that disincentivizes homeowners from moving up. People will have to wait it out and hope that in the spring it may be a better time to move up or stay put longer.”
Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.