New home sales fell in September amid rising mortgage rates that have pushed some buyers away from the housing market.
Sales of newly constructed homes dropped 10.9% in September from August and were down 17.6% from a year ago, according to a joint report from the US Department of Housing and Urban Development and the US Census Bureau.
Some 603,000 new homes were sold last month, at a seasonally adjusted annualized rate, down from a revised 677,000 in August. A year ago, 732,000 newly constructed homes were sold.
Meanwhile, the median price for a new home rose to $470,600, up 13.9% from a year ago. The price also increased from the $436,800 median price in August.
There were stark regional differences in new home sales, with the South taking the biggest hit and the Northeast seeing a huge increase in sales activity.
Sales of new homes fell month-over-month in the South, down 20.2%, and the West, down 0.7%. But sales rose 56% in the Northeast and 4.3% in the Midwest from August.
“New home sales took a hit in September, beaten down by rising mortgage rates that now hover around 7%,” said Robert Frick, corporate economist at Navy Federal Credit Union. “Both inventories and new home prices remain high, so a drop in mortgage rates and prices would likely trigger a rush to buy, but we shouldn’t expect such conditions until next year at the earliest.”
Until that happens, there will be a mismatch between high prices and buyers’ budgets, said Kelly Mangold of RCLCO Real Estate Consulting.
“Motivated buyers who are able to stomach the rate increase or who may be buying in cash are encountering a much less competitive buying landscape than earlier this year,” she said.
If rates continue to rise, it is likely that the for-sale market will continue to slow toward year’s end – and prices of homes will fall, said Mangold.
“This is all happening at a time when there remains a strong demographic demand for new for-sale homes,” said Mangold. “Many households would prefer to have more space, and may be in a housing situation that is not their ideal – so it will be important to monitor conditions closely, as there is still likely significant pent-up demand for when conditions begin to improve.”