Sales of new U.S. single-family homes fell in August 2024, but the decline was smaller than expected.
According to the Commerce Department’s Census Bureau, sales dropped 4.7% to a seasonally adjusted annual rate of 716,000 units, down from 751,000 in July. This marks a continued fluctuation in the housing market, with monthly changes remaining volatile.
Experts believe that falling mortgage rates and lower home prices could boost demand in the months ahead.
Economists polled by Reuters had forecast a more significant drop, expecting sales to fall to a rate of 700,000 units.
Despite the month-to-month decline, new home sales increased by 9.8% on a year-over-year basis. These figures come as the Federal Reserve continues to lower interest rates in an effort to stimulate the housing market and broader economy.
Last week, the Fed cut its benchmark overnight interest rate by 50 basis points to a range of 4.75%-5%, the first reduction since 2020.
Declining Mortgage Rates Provide a Silver Lining
The August drop in home sales comes as mortgage rates begin to ease, offering a potential boost to future demand.
The average rate on a 30-year fixed-rate mortgage fell to 6.09% last week, the lowest since February 2023, down from 6.20% the previous week.
This decline in borrowing costs, coupled with a drop in home prices, could spur renewed interest from homebuyers in the coming months.
The median price of a new home fell by 4.6% from the previous year, now sitting at $420,600.
Economists believe that the combination of lower rates and reduced prices could help the housing market regain momentum.
Nancy Vanden Houten, lead U.S. economist at Oxford Economics, noted, “We expect lower mortgage rates, pent-up demand, and a still relatively scarce supply of existing homes to support modest growth in new home sales over the balance of 2024 and into 2025.”
Regional Variations in Sales
While the overall national sales figure dropped, regional disparities in the housing market were significant.
New home sales plunged 27.3% in the Northeast, a region already facing higher home prices, and fell by 5.8% in the Midwest.
The West saw a steep 17.8% decline in sales, but in the South, sales rose by 2.7%, suggesting a strong demand for homes in the densely populated region.
The increase in inventory of new homes could further stimulate sales as more choices become available.
In August, the supply of new homes on the market rose to 467,000 units, up from 459,000 in July, marking the highest level of inventory since 2008.
Builders have been ramping up construction to address the shortage of existing homes for sale, which has benefited the new housing market.
Outlook for the Housing Market
Although sales dipped in August, many experts believe that lower mortgage rates and a larger inventory of homes will help stabilize the market.
However, some caution that expectations of further rate cuts could lead buyers to delay purchases in hopes of even better borrowing conditions.
“Anyone who can postpone a home purchase probably will, to realize even lower mortgage rates six or 12 months from now,” said Carl Weinberg, chief economist at High Frequency Economics.
At the current sales pace, it would take 7.8 months to clear the inventory of new homes on the market, up from 7.3 months in July.
Despite this, analysts expect the housing market to see modest growth in the coming year, especially as builders work through their existing inventory.
With falling mortgage rates and prices, the housing market may be poised for a rebound as demand picks up in the months ahead. However, much will depend on how quickly consumers respond to these more favorable conditions.