NewsPending and New Home Sales Continued to Decline in September

Pending and New Home Sales Continued to Decline in September

This week, data from the National Association of Realtors (NAR) found that pending home sales declined for the fourth straight month in September. Pending home sales, which refer to sales that have not yet officially closed, declined 10.2% in September and 31.0% annually. Pending home sales have not been as low as they are now since June 2010, except for April 2020, the first full month of the COVID-19 pandemic.

New home sales (sales of newly constructed homes) fell by a similar amount in September, about 10.9%. On an annual basis, new home sales declined 17.6%. According to NAR data, overall home prices declined in June, July, and August. However, the U.S. Census reports that sales prices of newly constructed homes increased in September despite declining sales activity. The median price for a new home rose to $470,600, up from $436,800 in August.

Kelly Mangold of RCLCO Real Estate Consulting told CNN that sales prices of newly constructed homes continue to increase because “there remains a strong demographic demand for new for-sale homes. Many households would prefer to have more space, and may be in a housing situation that is not their ideal – so it will be important to monitor conditions closely, as there is still likely significant pent-up demand for when conditions begin to improve.”

Why the Housing Market is Cooling Down

While sales prices of new homes increased in September, home prices overall continued to fall, with monthly price declines of roughly 1.0% each in June, July, and August. At this point, it is clear that the housing market was, and is, in a pandemic-induced bubble. However, high inflation, high prices, and a lack of available inventory are now combining to drive down homebuying demand and sales prices overall.

“Persistent inflation has proven quite harmful to the housing market,” NAR Chief Economist Lawrence Yun said in a statement. “The Federal Reserve has had to drastically raise interest rates to quell inflation, which has resulted in far fewer buyers and even fewer sellers.”

Yun also pointed to low inventory as a major problem hindering the housing market. New home listings are down annually because the average homeowner does not want to sell their home and purchase a new property with sky-high interest rates. According to the Federal Reserve, mortgage interest rates hit a low of 2.65% at the beginning of January 2021 but are north of 7.0% as of October.

“The new normal for mortgage rates could be around 7% for a while,” Yun said in his statement. “On a $300,000 loan, that translates to a typical monthly mortgage payment of nearly $2,000, compared to $1,265 just one year ago – a difference of more than $700 per month. Only when inflation is tamed will mortgage rates retreat and boost home purchasing power for buyers.”

The health of the overall economy could also impact the direction of the housing market. In Q3 2022, GDP increased by 2.6%, which is higher than economists had anticipated. Most economists don’t believe that the U.S. has been in a recession and anticipate that the economy will continue to grow, albeit slowly, during the final quarter of the year. However, GDP growth will likely stall next year or outright decline. A group of recently surveyed economists expect GDP growth to languish next year at only 0.2% growth for the whole of 2023.

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