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U.S. new-home sales decline as rising mortgage rates sap demand

Oct. 26, 2022 Updated Wed., Oct. 26, 2022 at 4:08 p.m.

New homes under construction are shown at a housing development in Louisville, Kentucky, on Jan. 5,2019.   (Luke Sharrett/Bloomberg)
New homes under construction are shown at a housing development in Louisville, Kentucky, on Jan. 5,2019.  (Luke Sharrett/Bloomberg)
By Jordan Yadoo Bloomberg

Sales of new U.S. homes fell in September, resuming a downtrend as decades-high mortgage rates push would-be buyers out of the market.

Purchases of new single-family homes decreased 10.9% to a 603,000 annualized pace following an unexpected gain in August, government data showed Wednesday.

The median estimate in a Bloomberg survey of economists called for a 580,000 rate.

The figures reflect a slide in housing demand as the Federal Reserve aggressively boosts interest rates to combat the worst inflation in a generation.

Mortgage rates increased to 7.16% last week, the highest level since 2001. That’s sapping affordability, sidelining prospective buyers and leading some measures of home prices to fall.

So far, that hasn’t shown up in prices of new homes. The report, produced by the Census Bureau and the Department of Housing and Urban Development, showed the median sales price of a new home rose 13.9% from a year earlier to $470,600.

There were 462,000 new homes for sale as of the end of the month, the most since 2008, though the overwhelming majority remain under construction or not yet started.

At the current sales pace, it would take 9.2 months to exhaust the supply of new homes, compared with 8.1 months in August and 6.1 months a year ago.

Homebuilder PulteGroup Inc. reported on Tuesday that purchase contracts plunged and deal cancellations spiked in the third quarter.

Chief Executive Officer Ryan Marshall said on an earnings call the weaker demand was broad across geographies and consumer groups.

New U.S. home construction declined in September and permit applications for single-family dwellings fell, according to government data released last week.

Homebuilder sentiment has declined every month this year, and is now at the worst level since the early days of the pandemic.

The number of homes sold in September and awaiting the start of construction – a measure of backlogs – rose to 168,000 from a month earlier, Wednesday’s report showed.

Sales declined in two of four U.S. regions, led by a 20.2% plunge in the South.

New-home purchases account for about 10% of the market and are calculated when contracts are signed.

They are considered a timelier barometer than purchases of previously-owned homes, which are calculated when contracts close

Existing-home sales dropped for an eighth straight month in September, the longest stretch since 2007.

The new-homes data are volatile; the report showed 90% confidence that the change in sales ranged from a 26.1% decline to a 4.3% increase.

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