In a surprising twist, new home sales in August defied expectations by skyrocketing 20.5% from the previous month, marking a 15.4% increase compared to last year. This surge, the largest since August 2022, caught analysts off guard, who had anticipated a modest decline. The total seasonally adjusted annual rate of new home sales reached 800,000, the highest since December 2021 and notably diverged from existing home sales trends.
The South region played a pivotal role in this unexpected boom, driving the majority of the sales. However, this surge came with a catch: prices soared. The median new home price rose by 1.9% year-over-year to $413,500, while the average selling price nearly hit record highs at $534,100. This represents the third-largest monthly jump in average home prices since the Lehman Brothers collapse, with a staggering 11.7% increase.
Interestingly, the spike in sales was largely dominated by the most expensive homes, yet the median new home prices remain below those of existing homes. Meanwhile, the number of houses for sale in August decreased by 1.4% to 490,000, reducing the months’ supply from 9.0 to 7.4.
The question on everyone's mind is whether this sales jump is sustainable. Thomas Ryan, a North America economist at Capital Economics, suggests that lower borrowing costs have fueled this surge and could continue to drive sales in the coming months, especially as mortgage rates have been on a downward trend.
US homebuilders seem to be successfully enticing buyers with aggressive sales incentives. A recent survey by the National Association of Home Builders and Wells Fargo revealed that 39% of builders reported cutting prices, a post-pandemic high. Homebuilder Lennar Corp. has been offering sales incentives equal to 14.3% of its average sale price, more than double its usual rate.
Despite these promising numbers, affordability remains a significant concern. Many potential buyers are still priced out due to high costs and financing rates, compounded by growing unease about the labor market. It's a complex landscape and while some NRV property owners might find opportunities in these trends, the broader market continues to grapple with these challenges.
In summary, I’d say the housing market is full of surprises, with August's unexpected sales boom offering a glimmer of hope amid ongoing affordability issues. It will be interesting to see how these dynamics play out in the coming months.
Source Inspiration: Zero Hedge
