New home sales pulled back in August
Summary
Tailwinds for builders showing signs of fading as mortgage rates edge higher
Thus far, builders have been largely successful navigating the headwinds triggered by the Fed’s monetary tightening cycle. Favorable supply dynamics and builders’ use of incentives have prompted new home sales to improve on balance this year despite the rising interest rate environment. Yet, the recent surge in mortgage rates may be weighing on demand as buyers increasingly become discouraged by the prospect of higher financing costs. New home sales dropped 8.7% in August, the largest monthly decline since September 2022. Generally speaking, monthly residential sales data can be quite volatile and subject to substantial revisions. However, it seems that higher mortgage rates are starting to take a bite out of buyer demand. The median new home price dipped 1.4% in August as builders were forced to step up their use of price cuts and other incentives to reinvigorate buyer interest. In our view, the near-term outlook for new home sales has been clouded by the recent uptick in mortgage rates. Per Freddie Mac, the average 30-year fixed mortgage rate has buoyed above 7.0% for the last six weeks, which will likely test builders’ abilities to bridge the affordability gap in the months ahead.
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Author
Wells Fargo Research Team
Wells Fargo
