US new home sales ease as borrowing costs climb

Summary:

– U.S. new home sales edged down 0.6% in September to an annualized pace of 676,000 units.

– The median price of a new home fell 3.9% from a year earlier to $400,400.

– New home inventory slipped to 476,000 units, or 8.4 months of supply at September’s sales rate.

WASHINGTON — Sales of newly built single-family homes in the United States weakened in September, giving back part of the previous month’s increase as higher mortgage rates, fueled by the Middle East conflict, weighed on demand.

The Commerce Department’s Census Bureau said on Tuesday that new home sales declined 0.6% last month to a seasonally adjusted annual rate of 676,000 units. The August figure was revised down to 680,000 units from the previously reported 684,000.

Economists surveyed by Reuters had expected sales to ease to 650,000 units. New home sales are recorded at contract closing, making them the most current gauge of housing demand, although they represent only a small portion of total U.S. home sales. Sales fell in the Midwest and South, but rose sharply in the Northeast and West.

Compared with the same month a year earlier, sales were down 5.3%.

The average rate on a 30-year fixed mortgage has climbed by more than 130 basis points since the U.S. and Israel attacked Iran at the end of February. Freddie Mac reported that the rate averaged 7.32% last week.

Higher borrowing costs have added to what economists call an affordability crisis, a problem that has featured prominently in campaign messaging ahead of the midterm elections.

A survey from the National Association of Home Builders released last week showed builder expectations for home sales over the next six months fell to their lowest level since April 2012, excluding the sharp drop seen early in the COVID-19 pandemic.

The median price of a new home fell 3.9% from a year earlier to $400,400 in September, still a high level that likely reflects weaker demand and price cuts by developers. Most homes sold during the month were priced below $499,999.

The stock of new homes on the market fell to 476,000 from 481,000 in August. At September’s sales pace, that would amount to 8.4 months of supply, down from 8.5 months a month earlier.

Elevated inventory also continues to discourage builders from starting new single-family projects. The government said last week that single-family housing starts dropped sharply in September, while permits for future construction slid to a 3-1/2-year low.