Decline in Newly Built Home Prices
Prices for newly constructed homes fell last month as builders increased incentives to attract buyers facing affordability challenges. The U.S. Census Bureau reported that the median sales price for new homes in August dropped to $420,600, reflecting a 4.6% decrease from a year ago and a 2.1% decline from July.
Contrast with Existing Home Prices
In contrast, the median price of existing homes rose by 3.1% to $416,700 in August, according to the National Association of Realtors®. However, sales of existing homes decreased, with many buyers opting to wait for mortgage rates to drop further.
New Home Sales Statistics
Sales of new single-family homes also saw a 4.7% drop in August compared to July, with an annualized rate of 716,000. Despite this monthly decline, new home sales increased by 9.8% compared to the previous year, when mortgage rates were higher. The average rate for a 30-year fixed mortgage was 6.5% in August, down from over 7% the previous year.
Potential Increase in Buyer Activity
Bright MLS Chief Economist Lisa Sturtevant believes that falling mortgage rates may encourage more buyers to enter the market this fall. However, she cautions that the rising number of existing home listings could reduce demand for new homes. While lower mortgage rates typically drive price growth, affordability remains a significant challenge for many buyers, impacting their purchasing power.
Incentives to Attract Buyers
To draw buyers, homebuilders are increasingly offering incentives such as mortgage rate buy-downs, price reductions, and credits for closing costs. They are also focusing on smaller homes that are more affordable for first-time buyers. For example, Lennar, a major homebuilder, reported a 6% decrease in average sales prices last quarter, primarily due to increased incentives and a shift towards smaller floor plans.
Growth in Affordable Home Sales
Census data indicates a rise in the market share of new homes priced below $300,000, which accounted for 18% of sales in August, up from 12% a year ago.
Increase in New Home Inventory
The inventory of new single-family homes grew by 1.7% in August, reaching 467,000 homes, equivalent to a 7.8-month supply at the current sales pace. Additionally, the number of completed, move-in-ready homes rose to 105,000, the highest level since 2009, although this category makes up only 22% of total new home inventory, which includes homes at various stages of construction.
Market Supply Dynamics
National Association of Homebuilders Chief Economist Robert Dietz noted that while a 7.8-month supply of new homes may seem elevated, there is only a 4.1-month supply of existing homes on the market. Overall, the total supply of homes remains below the six-month threshold that indicates a balanced market. This situation may change as more homeowners list their properties in the coming months.
