Rising Prices and Rates Cause New Home Sales to Fall Sharply

Real Estate In-Depth | November 2018

WASHINGTON—Sales of newly built, single-family homes fell to a seasonally adjusted annual rate of 544,000 units in October after an upwardly revised September report, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

This is the lowest sales pace since December 2016. However, on a year-to-date basis, sales are up 2.8% from this time in 2017. Home sales in the Northeast fell more than 17% in the month of October, the largest sales decline of any region in the U.S.

“The November reading is consistent with reports from our builders, who say that the job market and demographic tailwinds bode well for housing demand but rising interest rates and home prices are forcing customers to take a pause,” said Randy Noel, chairman of the National Association of Home Builders (NAHB) and a custom home builder from LaPlace, LA. “Policymakers should see this drop in sales as an indicator that housing affordability will continue to slow down the market.”

“Home sales declined this month as housing affordability continues to be a hurdle for consumers,” says NAHB Senior Economist Danushka Nanayakkara-Skillington. “While a solid economy and positive demographics support future demand for housing, it is critical to address this mounting affordability crisis.”

Looking at the regional numbers on a year-to-date basis, new home sales rose 6.3% in the Midwest, 4.1% in the West, and 3.8% in the South. Home sales fell 17.1% in the Northeast year-to-date.

The inventory of new homes for sale rose to 336,000 in October. The median sales price fell 3.6% to $309,700, as the market is shifting to townhomes and other lower-cost houses, NAHB reports.

A new home sale occurs when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the October reading of 544,000 units is the number of homes that would sell if this pace continued for the next 12 months.