Sales of new US single-family homes dropped in September and data for the prior month was revised lower, more evidence that higher mortgage rates are choking the housing market.
New home sales decreased 10.9% to a seasonally adjusted annual rate of 603,000 units last month, the Commerce Department said Wednesday. August’s sales pace was revised down to 677,000 units from the previously reported 685,000 units.
Sales tumbled 20.2% in the densely populated South and fell 0.7% in the West. But they rose 4.3% in the Midwest and surged 56.0% in the Northeast. Economists polled by Reuters had forecast new home sales, which account for about 10% of US home sales, declining to a rate of 585,000 units.
Sales plummeted 17.6% on a year-on-year basis in September. They peaked at a rate of 993,000 units in January 2021, which was the highest level since the end of 2006.
Data on Tuesday showed home prices logged their second straight monthly decline in August, resulting in a considerable slowdown in the annual pace of increase in house prices. Sales of previously owned homes fell for an eighth straight month in September, while homebuilding dropped, reports showed last week.
The housing market has been the worst hit by the Federal Reserve’s aggressive interest rate hikes intended to dampen overall demand in the economy, with annual inflation having risen at its fastest pace in 40 years.
The central bank has raised its benchmark overnight interest rate from near zero in March to the current range of 3% to 3.25%, the steepest pace of policy tightening in a generation or more. That rate is likely to end the year in the mid-4% range, based on the central bank officials’ own projections and recent comments.
Mortgage rates have increased even faster. The 30-year fixed mortgage rate averaged 6.94% in the latest week, the highest in 20 years, up from 6.92% in the prior week, according to data from mortgage finance agency Freddie Mac.
The median new house price in September was $470,600, a 13.9% increase from a year ago. There were 462,000 new homes on the market at the end of last month, up from 457,000 units in August. Houses under construction made up 65.2% of the inventory, with homes yet to be built accounting for 22.7%.
Completed houses accounted for 12.1% of the inventory, well below a long-term average of 27%. At September’s sales pace it would take 9.2 months to clear the supply of houses on the market, up from 8.1 months in August.