Sales of New Homes Slowed in September

New home sales fell slightly in September to a seasonally adjusted annual rate of 959,000 units, a drop of 3.5% from August; sales in August were revised down to slightly below the one million mark. Monthly sales fell across regions except for the West; however, on an annualized basis, sales are up 32% nationwide. The increased costs of lumber, land and labor have been passed on only partially, given that the median sales price is up only 3.5% from a year ago. Inventory available for sale rose slightly to 3.6 months’ supply, almost half what is needed to meet rising demand. Sales for entry-level homes accounted for only 3% of total sales for the month; builders are busy meeting demand for larger homes at the higher end of the market.

The largest part of the housing market, existing home sales, expanded for the fourth month in a row in September to a seasonally adjusted annual rate of 6.54 million, up 9.4% from August. Gains were posted across regions; sales in the South hit a record 2.8 million, the highest for this data series since tracking began in 1999. The home buying season is being pushed out into the latter months of the year because lockdowns delayed spring buying. Record-low mortgage rates are encouraging buyers. Sales of vacation homes are on the rise, especially as many are expecting to continue to work remotely well into 2021. Counties where vacation homes are common have posted increases of up to 34% on an annualized basis. Inventory for homes overall stands at a record low, 2.7 months’ supply in September. The amount of time spent on the market is also at a historic low of 21 days on average.

The number of new mortgage applications fell slightly during the third week of October, marking four weeks in a row of declining purchase applications. Refinance applications edged higher. Mortgages in forbearance fell to 5.92% in the second week of October, totaling an estimated three million loan holders. While loans from all types of servicers fell, those from the government agency Ginnie Mae fell at a much slower rate; Ginnie Mae loans in forbearance had been heading higher until the end of September.

While some parts of the labor market have recovered from the first lockdowns, the improvement is uneven. Rent payments in October have been tracking higher than the previous two months but are still slightly below 2019 levels. After additional support from extended unemployment benefits ended, people started to deplete saving ahead of the traditional holiday season. The latest eviction moratorium put in place by the Center for Disease Control and Prevention (CDC) expires on December 31.

Bottom Line
The single-family housing market is still registering strong demand as we enter the fourth quarter; however, record-low supply is pushing up prices even faster, which is hindering potential buyers from affording new homes. This will be exacerbated by the lack of additional COVID-19 support from Congress; the scars of this recession will run deep. For the remainder of 2020, construction activity for single-family homes will remain strong in order to meet the backlog.

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