A Letdown in New Home Sales

Existing home sales in September were fairly healthy, but new home sales were down 11.5 percent compared to August, showing the possibility of a weakening housing market.

In the normal procession of data about the U.S. economy, statistics about existing home sales – generated privately by the National Association of Realtors – comes just ahead of new home sales figures, which are released by the Census Bureau. Existing sales were fairly healthy in September, but new home sales hit a bump. Arguably new home sales are more directly important to the economy, since their creation employs construction workers and others, spurs the purchase of building materials, and in the longer term, spurs the development of other kinds of properties, especially retail but also office and (indirectly) industrial, since development spurs the movement of goods.

The Census Bureau noted on Monday that new home sales came in at an annualized rate of 468,000 units in September, down 11.5 percent compared with August, though 2 percent above September 2014. It was lower than expected, and possibly a sign of a weakening housing market. Then again, monthly reports can be noise. Year-to-date, sales are still fairly firm. The Census Bureau also reported that new home sales for the nine months ending in September were 392,000 units, which is up 17.6 percent from the same period of 2014.

Even so, new home sales are still quite slow historically as well. New product tended to sell better in earlier decades, even though the U.S. population wasn’t as large. What’s keeping a lid on sales? It still isn’t interest rates, which are still quite low — and for mortgage rates, some of the lowest in modern times. According to Freddie Mac late last week, the 30-year fixed-rate average was at 3.79 percent, with an average 0.6 points. The average was 3.82 percent a week earlier and 3.92 percent a year ago. It also isn’t job gains. Though U.S. job growth has had a weakish few months lately, overall the economy’s producing more jobs now than at any time since the recession.

On the other hand, new houses are much more expensive than they used to be, which might be causing some would-be buyers to hesitate. According to the Census Bureau, the median new-home sales price jumped 13.5 percent in September from a year ago, to $296,900. For their part, the cost of labor and materials, and the scarcity of develop-able land in some markets, encourages builders to focus on more expensive product. Housing inventory is another factor in keeping new construction prices high. That might change as builders respond to the growth in demand from the burgeoning number of Millennials who might want houses in the next decade, but that’s still conjecture. That generation still has a lot of headwinds against it (student debt, lower wages) when it comes to buying a house.