New home sales have not yet caught up to lower rates

September 25, 2024

New home sales in the month of August slumped 4.7%, after July sales were revised higher. However, they were still 9.8% higher than the previous year, when mortgage rates were above 7%. Sales are captured at the contract signing and reflect the most recent activity in the housing market. Mortgage rates began to tumble in early July; many would-be buyers have been waiting for lower rates before jumping in to buy. The interest rate for the 30-year fixed mortgage sits at 6.1% by mid-September, the lowest since February 2023. More rate declines are expected as the Federal Reserve signaled that its 50-basis-point cut was just the beginning of the cutting cycle.

Sales were highest in the Midwest and South. More homes are being sold for under $500,000 as builders have pivoted to smaller and more affordable homes for first-time buyers and those looking to downsize.

The median sales price in August was $420,600, 4.6% lower than a year ago. Builders still offer incentives such as mortgage rate buydowns to lure in would-be buyers. The supply of newly built homes available for sale ticked up in August to a 7.8 months’ supply, which is slightly lower than a year ago. Newly built homes make up nearly a third of the housing inventory available for sale, significantly higher than the historic average. The resale market remains undersupplied.

Existing home sales fell 2.5% in August to 3.86 million units. Sales are captured at the contract closing and reflect activity from a few months prior, when mortgage rates had not yet started to decline. Inventory of homes available ticked up to 4.2 months of supply, about 240,000 units higher than a year ago. A six-month supply is considered a balanced market.

Mortgage applications to purchase a home have picked up slightly in recent weeks but are still flirting with multi-decade lows. Buyers are holding out for lower rates. Refinancing applications surged to the highest level since April 2022, when mortgage rates first started to move up. A third of mortgage holders have locked into a rate of 5% or lower, but those who entered the market at the 7% mortgage rate are now able to refinance and are jumping at that chance.