New home sales reached their highest level in over a year last month, driven by declining mortgage rates that reignited movement in the housing market. According to estimates jointly released by the U.S. Census Bureau and the Department of Housing and Urban Development, sales of new single-family houses rose to a seasonally adjusted annual rate of 738,000 in September. This marks a 4.1% increase from August’s revised figure of 709,000 and a 6.3% rise compared to September of the previous year.
Despite this positive trend, the housing market faces new challenges as mortgage rates tick back upward. The 30-year fixed-rate mortgage climbed to the mid-6% range in early October, a reversal from earlier lows near 6% following the Federal Reserve’s interest rate cut. This rise in rates has led to a sharp drop in mortgage applications, dampening hopes for a swift recovery in the housing sector. Bob Broeksmit, president and CEO of the Mortgage Bankers Association, noted that mortgage applications last week hit their lowest level since July, reflecting a cooling demand for both refinances and home purchases.
Even with current rate volatility, some market conditions remain favorable for prospective buyers. Broeksmit highlighted that rising inventory levels and easing home-price growth offer positive developments for the fall market. However, the pace of declining mortgage rates appears to have slowed. Goldman Sachs recently adjusted its forecasts, predicting year-end 2024 and 2025 rates for 30-year conforming mortgages to stabilize at 6.0% and 6.05%, respectively, suggesting limited further reductions.
Affordability and inventory have emerged as the primary barriers to a broader recovery in the housing market. The median sales price of new homes in September stood at $426,300, while the average price reached $501,000, underscoring the persistent strain on affordability for many buyers. Inventory, however, showed signs of improvement, with 34% more homes available for sale on a typical day in September compared to the same period in 2023. Realtor.com data also revealed an 11.6% increase in new listings from the previous year, marking a three-year high and a notable turnaround from August declines.
The housing sector continues to recover at a slower pace than other areas of the economy, hindered by long-term mortgage contracts and sticky home prices. However, recent interest rate cuts and increased activity point to the early days of a potential resurgence. For now, buyers and sellers alike will need to navigate a complex and evolving market as they adjust to the challenges and opportunities it presents.
