New home sales increased by 7.1% to a seasonally adjusted annual rate of 713,000 units in August. June and July figures were revised higher; June retains the highest sales rate so far this year. Home sales in the South and West drove the gains but the Northeast and Midwest recorded month-over-month declines.
The gains were concentrated in sales of new homes priced over $400,000. The median price rose five percent to $328,400 in August. Freddie Mac research shows that in every market in the U.S., prices are changing more rapidly in the low end of the market where demand is greatest and supply tightest. Declining activity in new, entry-level home purchases is primarily due to this lack of supply.
Existing home sales, the largest segment of the housing market, rose 1.3% in August to a seasonally adjusted annual rate of 5.49 million, a second consecutive increase that marks a 17-month high. Sales increased 2.6% from one year ago with the median price at $278,200. Supply is still tight with only a 4.1-month supply of unsold inventory recorded in August. While millennials are looking for entry-level homes, the silent generation and baby boomers are holding onto their homes and aging in place, which constrained the supply of housing by an estimated 1.65 million units in 2018, according to Freddie Mac.
Mortgage rates bottomed out in early September and have since risen slightly to 3.73% for a 30-year average. While rates are still near record lows, the change in trend motivated fence-sitters to refinance before rates climbed any higher. At the end of this month, the motivation to refinance fizzled out; refinancing applications fell 15.2%. Low rates encourage refinancing but appear to be less motivating for purchases. Mortgage applications for purchase slipped 3.1% during the past week, though they are still up 15 percent from one year ago.
Housing market activity picked up but not in the entry-level segment where supply is most constrained. Consumer housing sentiment remained high but only due to confidence in mortgage rates remaining low, according to Fannie Mae. Breaking down the index, confidence in this being a good time to buy or sell a house or hold onto a job actually decreased. Consumer confidence as measured by the Conference Board tells a similar story as consumers’ present and future expectations declined during this month. Consumers are supporting the economy so any negative news to hurt their confidence could spill over into the housing market.
Copyright © 2019 Diane Swonk – All rights reserved. The information provided herein is believed to be obtained from sources deemed to be accurate, timely and reliable. However, no assurance is given in that respect. The reader should not rely on this information in making economic, financial, investment or any other decisions. This communication does not constitute an offer or solicitation, or solicitation of any offer to buy or sell any security, investment or other product. Likewise, this communication serves to provide certain opinions on current market conditions, economic policy or trends and is not a recommendation to engage in, or refrain from engaging, in a particular course of action.