Higher mortgage rates and a large supply give developers an advantage over sellers of existing homes because they can offer buyers significant interest rate discounts while also offering more choice. These advantages are clearly visible in the data.
The U.S. Census Bureau And U.S. Department of Housing and Urban Development reported that new home sales reached a seasonally adjusted annual rate of 739,000 in July. This is a whopping 10.6% increase from June and a 5.6% increase year-over-year. Although these numbers are better than expected, HousingWire Senior analyst Logan Mohtashami said other data had predicted the increase.
“New home sales grew better than expected, but there were earlier indications of this,” Mohtashami said. “HMI homebuilder survey data showed two slightly positive months of growth in the single-family home demand category over the next six months.”
“The purchase application data for the new-build sales sector has increased in the last month and this is a monthly survey. And Toll Brothers commented (in its earnings call) that their traffic was better in August because prices were still lower.”
But the dynamic that has given homebuilders the upper hand is changing. Interest rates have been slowly coming down, and according to HousingWire’s Mortgage Rates Center, the 30-year fixed rate on conventional loans is currently 6.67 percent. And they’re expected to fall even further.
Just minutes after the release of the new home sales report, The US Federal Reserve Chairman Jerome Powell said during a speech at the Kansas City Fed’s annual meeting that “the time has come for a policy adjustment.” The housing industry had been expecting rate cuts as early as September, and these comments are the clearest sign yet that one will happen.
Existing home sales remained sluggish in July, up 1.3% from June and down 2.5% year-over-year. However, existing home supply increased 19.8% year-over-year, putting supply months at 4.0 at the current sales pace, which is high year-over-year.
Meanwhile, the supply of new homes has stalled. In July, the seasonally adjusted annual rate of new homes for sale reached 462,000, equivalent to 7.5 months of supply. That’s a 10.7% decline from a year ago.
As the gap between the inventory of new and existing homes narrows and prices fall, homebuyers who were previously unable to afford to purchase due to lack of affordability will be more likely to be able to purchase existing homes.
“An increase in the number of existing properties for sale can dampen buyers’ interest in new buildings,” Bright MLS Chief Economist Lisa Sturtevant in a statement. “With lower interest rates and more choices, we expect more homebuyers in the market this fall. However, the new home market has likely lost some of its advantages as homebuyers can find more affordable existing homes where sellers are increasingly willing to negotiate.”
Another long-term dynamic is the 2024 election. Democratic presidential candidate Kamala Harris has unveiled a housing plan that includes a $25,000 down payment for first-time buyers, likely in the form of direct assistance. The Harris campaign also touted building 3 million new rental and retail homes through tax incentives for builders.
Republican candidate Donald Trump has not yet presented a real plan, although he and his running mate JD Vance have repeated calls for assistance for first-time home buyers while claiming that tougher action against illegal immigration would lead to more housing available for American citizens.
If Harris wins and implements her housing plan after taking office, the tax incentives for builders could lead to a thriving housing market in 2025.
