Prices for Newly Built Homes Drop as Builders Push More Incentives
In August, the median sales price of newly constructed homes fell to $420,600, marking a 4.6% year-over-year decline and a 2.1% drop from July. This decrease is attributed to builders offering more incentives to attract buyers facing affordability issues. Conversely, the median sales price of previously owned homes increased by 3.1% year-over-year to $416,700, although sales of existing homes declined as buyers awaited lower mortgage rates.
Sales of new single-family homes decreased by 4.7% from July to a seasonally adjusted annual rate of 716,000. However, this figure represents a 9.8% increase from the previous year, when mortgage rates were higher. In August, the average rate on 30-year fixed mortgages was 6.5%, down from over 7% a year earlier, and rates have continued to fall following the Federal Reserve's recent rate cut.
Bright MLS Chief Economist Lisa Sturtevant notes that while lower mortgage rates may boost buyer traffic, increased inventory of existing homes could reduce demand for new homes. Additionally, affordability remains a significant constraint, limiting consumers' purchasing power despite more buyers entering the market.
Homebuilders have responded to affordability concerns by offering incentives such as mortgage rate buy-downs, price reductions, and closing cost credits. They have also focused on building smaller, more affordable homes. Lennar, a major homebuilder, reported a 6% year-over-year drop in its average home sales price last quarter, primarily due to increased buyer incentives and a shift to smaller floor plans.
The U.S. Census Bureau data shows an increase in market share for new homes priced below $300,000, which accounted for 18% of new-home sales in August, up from 12% a year ago. The inventory of new single-family homes rose by 1.7% to 467,000, equating to a 7.8-month supply at the current sales pace. Completed, ready-to-occupy inventory reached 105,000 homes, the highest level since 2009, but this category only represents 22% of new-home inventory.
National Association of Homebuilders Chief Economist Robert Dietz points out that while a 7.8-month supply of new homes may seem high under normal conditions, the combined supply of new and existing homes remains below historic norms at approximately 4.7 months. This measure is expected to rise as more home sellers enter the market in the coming months. Housing economists generally consider a six-month supply to indicate a balanced market between buyers and sellers.
