Recent developments in the U.S. housing market
Interest rates have been above the 7% mark since August of this year, the highest level since the early 2000s. Elevated rates are pushing more homebuyers to delay their home purchase and wait for a more opportune time. Existing home sales, as reported by the National Association of Realtors (NAR), were down 15.3% from August 2022, but the median sale price of existing homes was up 3.9% over the same period. The lack of inventory of existing homes is pushing more homebuyers to consider new homes. New home sales for August were up 5.8% from last year as reported by the U.S. Census Bureau. The median sale price of new homes has decreased 2.3% from August 2022 to $430,000 in August 2023. Combining new and existing home sales, total home sales were down 12.8% from last August.
Home builders are becoming less confident, as measured by the National Association of Home Builders’ (NAHB) Housing Market Index. Higher interest rates and supply side constraints are putting pressure on suppliers’ ability to build new homes. All three components of the Housing Market Index fell, indicating the weaker demand from homebuyers and confidence from sellers. To drive more sales, an increasing number of home builders are adding incentives and decreasing the prices of new homes. This decline in sentiment is also reflected in the fewer number of housing starts in August, which fell 14.8% from last August and are down 4.3% from the start of this year. NAR’s Pending Home Sales Index, another forward-looking measure of home purchases, is also down 18.7% year over year.
While both housing demand and supply measures have been declining, the tighter level of supply outweighs the decrease in demand, which translates to upward pressure on house prices. House prices were up 4.6% in July according to the FHFA Purchase Only House Price Index.