September 2018 registered as the worst month for new home sales since December 2016.
The US Commerce Department reported that 553,000 new homes were sold in September, a sales volume drop of -5.5% below the revised downward seasonally adjusted rate of 585,000 in August 2018 and a -13.2% decline from the 637,000 new homes sold in September 2017.
Despite building stocks increasing 0.8%% on Wall Street the week of 10/22, the state of new construction building is down a whopping -40% year-to-date, according to Bleakley Advisory Group. Peter Boockvar, chief investment officer with Bleakley, said, “Anyone watching home builder stocks or watching builder data all year should not be surprised…that this important area of the US economy, (an area) highly sensitive to prices and rates, has obviously slowed sharply. “
Geographically, The South, the biggest area for new home sales, reported a volume of 318,000 sales in September, a -1.5% decline from August. One can only speculate that Hurricanes Florence and Michael had some impact on that lower sales volume. New home sales in the Northeast virtually collapsed in September by -40.6%, the lowest level of new home sales in the Northeast since April 2015. New home sales in the West declined by -12%. The Midwestern part of the country was the only gainer in September coming in at +6.9%.
Could this drop in new home sales cut into the Trump Administration’s forecast of a +3% growth trajectory for the overall economy? According to Chris Rupkey, chief financial economist with MUFG Union Bank, yes. “One thing is certain, the economy cannot grow at a sustainable +3% pace for long if new home sales continue to tumble.”
Most industry experts pointed their fingers at the Federal Reserve for raising interest rates as quickly and as much as it has for these slacking home sales. According to Bankrate.com, the most recent average rate is 4.87%. A potentially 5.0% average on interest rates “…could be seen as an inflection point for a market already under pressure throughout this year from rising rates.”
Rupkey agreed with Bankrate’s assessment regarding interest rates. “The Federal Reserve interest rates may be more harmful for economic growth than they thought, chiefly because of its effect on long-term interest rates and hence, mortgage rates.”
September 2018 also saw a decline in the median sale price of new homes from $331,500 one year ago in the same time period to $320,000 this year. Robert Frick, a corporal economist with Navy Federal Credit Union, sees this drop in the median sales price as a good thing. “Should (this median price drop) become a trend, and should wage growth continue to strengthen, a revitalized new-home sales market could occur next year.”
There were more new homes on the market to sell, 327,000 new homes, than have been on the market since January 2009. That being said, these 327,000 new homes for sale are just half the number of new homes there were to buy at the peak of the housing market boom in 2006.
Nearly 2/3 or 66% of the new homes sold in September were either under construction or yet to be built.
