Sales of new homes in September saw a significant boost, defying the climb in mortgage rates. This surge indicates that buyers remain enthusiastic about purchasing new homes, especially since the market offers limited options for previously owned properties. Additionally, builder incentives likely played a role in driving sales.
Government data released on Wednesday revealed that new home sales, a measure of contract signings for newly constructed homes, rose by an impressive 12.3%. The seasonally-adjusted annual rate of sales reached 759,000, surpassing August’s upwardly-revised rate of 676,000. Economists had predicted a more modest gain of 0.7% based on August’s preliminary level, according to FactSet. Moreover, September’s rate marked a remarkable 34% increase compared to the same period last year and represented the highest level since February 2022.
Despite the rapid increase in mortgage rates, prospective buyers continued to actively participate in the market. The data reflects the period when mortgage rates reached their highest point in two decades. In fact, mortgage rates have consistently risen since the end of September, with the average 30-year fixed mortgage rate surging to 7.63% last week, reaching its highest level since late 2000.
Given the scarcity of previously owned homes available for sale, it is evident that buyers are seeking alternative options. This includes turning to builders who may offer price reductions or buyer incentives. According to a survey conducted by the National Association of Home Builders in October, around 30% of builders reported reducing home prices, while a significant 62% stated that they offered sales incentives more broadly.
In conclusion, the surge in new home sales demonstrates the unwavering demand from prospective buyers in the face of rising mortgage rates. Limited options in the previously owned home market have led buyers to explore alternatives such as newly constructed homes. Furthermore, the willingness of builders to offer price cuts and incentives has contributed to the robust sales growth in this segment.