New Home Sales Rebound to 684,000 Annual Rate in August

According to Bryce Gill, Economist, Brian S. Wesbury, Chief Economist, and Robert Stein, CFA, Deputy Chief Economist at First Trust Portfolios, new single-family home sales increased by 6.4% in August, reaching an annual rate of 684,000. This figure considerably exceeded the consensus expectation of 618,000, though sales are down 2.0% from a year ago. The economists note that August's performance represents the fastest pace so far this year, bringing sales to pre-pandemic levels, which they identify as a ceiling for activity in recent years.

The report indicates that sales saw increases in the Midwest and South, while declining in the Northeast and West. The months' supply of new homes fell to 8.5 in August, a drop attributed entirely to the faster pace of sales, as inventories remained unchanged. First Trust's analysis highlights ongoing challenges, including upward impacts on energy prices and inflation from geopolitical conflicts, which have led to a roughly 100 basis point increase in the average 30-year fixed mortgage rate since early this year. The economists also point out that the Federal Reserve's renewed interest rate hikes are expected to disproportionately affect the housing sector.

Despite these headwinds, the report suggests a silver lining for buyers: prices for new builds have been trending lower. The median price of new homes sold in August was $393,700, down 5.8% from a year ago, with the average price at $478,700, an 8.8% decrease year-over-year. Wesbury and his team emphasize that median sales prices are down 14.5% from their October 2022 peak. Furthermore, they note that the median square footage for new single-family homes built rose 2.5% from Q3 2022 to Q2 2026, meaning buyers are experiencing a lower price per square foot rather than just smaller, cheaper options. First Trust indicates that this is partially due to developers offering incentives to move inventory and that the supply of completed single-family homes, while recently trending down, is still up 260% compared to its 2022 low. The economists expect that while financing costs add uncertainty, less expensive options and abundant inventories could provide a modest boost to home sales through the end of 2026.

Key terms

1. Months’ supply of new homes: An estimate of how long it would take to sell all existing new homes for sale at the current rate of sales.

2. Basis points: A common unit of measure for interest rates and other percentages in finance, equal to one-hundredth of a percentage point.

3. Median price: The middle value in a set of prices, where half of the prices are higher and half are lower.

Source: Bryce Gill, Economist, Brian S. Wesbury, Chief Economist, and Robert Stein, CFA, Deputy Chief Economist, First Trust Portfolios — Data Watch. Read the original at ftportfolios.com.