Sales of new US homes tumbled in September as high home prices and mortgage rates not seen in over a decade edged prospective homebuyers out of the market.
New single-family home purchases fell 10.9% to a seasonally adjusted annual rate of 603,000 units, the Commerce Department reported on Wednesday. Economists surveyed by Refinitiv expected new home sales – which account for a small percentage of total sales – to fall 13.9% last month.
On an annual basis, new home sales are down 17.6%.
The median new house price climbed nearly 14% in September from the year-ago period to $470,600. That is also up about 8% from August. There were about 462,000 new homes on the market at the end of September, the report shows, an increase from 465,000 units in August.
INFLATION SURGED MORE THAN EXPECTED IN SEPTEMBER AS PRICES REMAIN PAINFULLY HIGH
“The housing market is still normalizing to an economy under pressure from higher borrowing costs, nagging inflation and uncertainty about future Fed activity,” said Jeffrey Roach, the chief economist at LPL Financial. “Housing demand will likely fall further in the coming months, putting downward pressure on median prices.”
The interest rate-sensitive housing market has borne the brunt of the Federal Reserve’s aggressive campaign to tighten policy and slow the economy. Policymakers already lifted the benchmark federal funds rate five consecutive times – including three 75-basis-point increases in June, July and September – and have shown no sign of slowing down as they try to crush inflation that is still running near a 40-year high.
The average rate for a 30-year fixed mortgage climbed to 6.94% for the week ended Oct. 20, according to the latest data released Thursday from mortgage lender Freddie Mac. That is more than double just one year ago, when rates stood at 3.09%.
Combined with high home prices, the rapid rise in borrowing costs has pushed many entry-level homebuyers out of the market.
A separate report released last week showed that existing home sales slowed for the eighth consecutive month.
Sales of previously owned homes tumbled 1.5% in September from the previous month to an annual rate of 4.71 million units, according to data from the National Association of Realtors (NAR). On an annual basis, home sales plunged 23.8% in September.
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“The housing sector continues to undergo an adjustment due to the continuous rise in interest rates, which eclipsed 6% for 30-year fixed mortgages in September and are now approaching 7%,” NAR chief economist Lawrence Yun said. “Expensive regions of the country are especially feeling the pinch and seeing larger declines in sales.”