New home sales rise despite existing market slump
Housing could provide a tailwind for the economy in 2025.
October 24, 2024
New home sales, which are recorded when contracts are signed, jumped 4.1% in September after the prior three months were revised slightly lower. Sales are now at the highest level in 16 months and 6.3% higher than a year ago. The Northeast and the South reported the highest sales growth.
Newly built home sales are reflective of recent market conditions, like the significant drop in the 30-year fixed mortgage rate that occurred from early August to the end of September. Markets began to price in more Federal Reserve rate cuts, which pushed the 30-year rate to a multiyear low of 6.08%. That trend began to reverse in early October. Market participants now believe fewer rate cuts are likely due to recent strong economic data.
The inventory of newly built homes available for sale fell to 7.6 months' supply at the current sales pace. Builders have been offering mortgage rate buydowns to lure buyers. Larger builders have the ability to offer discounts, which is evident in their lower-than-average inventory for sale.
More homes are being sold before construction has even started compared to a year ago. Permits for single-family home construction are picking up, a sign that builders are more optimistic about future demand.
Separately, existing home sales, which are recorded at the contract closing, slumped 1% in September, a 3.5% decline from a year ago. That was the second consecutive monthly decline and the weakest annualized pace of existing sales since October 2010. The median sales price keeps climbing. The overall supply of existing homes for sale remains constrained, despite increases in listings. There was about a 4.3 months' supply available in September, well below the five-to-six-months' supply needed for the market to achieve balance.
The first-time buyers' share remains at an all-time low of 26%. That is well below the norm of closer to 40%, and a testimony to the affordability hurdles. Everything from supply constraints and the upward pressure on prices to higher insurance and real estate taxes is curbing affordability.
Existing home sales reflect activity from a few months prior so we should see a bump from the downdraft in mortgage rates as we move into the winter months. Those gains could be short-lived, given the volatility in mortgage rates, which rose again in October. Many buyers are waiting on the sidelines for mortgage rates to fall further before they buy.
We expect the Fed to cut rates by another one-half percent before year-end.
Yelena Maleyev, KPMG Senior Economist
Bottom line
Rate cuts by the Federal Reserve are expected to provide more of a tailwind for the housing market in 2025 than this year. We expect the Fed to cut rates by another one-half percent before year-end. The problem is affordability, which goes beyond rate cuts alone. The recent hurricanes are another downside risk for housing activity, as repairs could further increase the costs of new construction at a time when materials costs are still high and construction workers are in short supply.
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