New-home sales fell in August as buyers awaited lower rates

Sales of new homes in the U.S. pulled back in August after a sharp increase in the prior month, as buyers remained patient amid steadily declining mortgage rates.

New single-family home sales decreased 4.7% last month to an annualized rate of 716,000 after rising at the fastest pace since early 2022, government data showed Wednesday. The median estimate in a Bloomberg survey of economists called for a 700,000 pace.

The median sales price, meantime, decreased 4.6% from a year earlier to $420,600. That marked the seventh straight month of annual price declines, extending what was already the longest streak since 2009. It mainly reflected fewer sales of homes priced above $500,000.

Despite the decline in sales, sentiment in the housing market is looking up. Mortgage rates are at the lowest level in two years, driven down by expectations of a series of Federal Reserve interest-rate cuts. 

That's boosted morale among both consumers and homebuilders, whose outlook for future sales turned positive this month for the first time since May, according to an industry survey. And shares of construction-related stocks have been trading near all-time highs.

Mortgage rates have fallen for eight consecutive weeks, the longest stretch of declines since 2018-2019, which has spurred greater demand for purchasing a home, according to data from the Mortgage Bankers Association. Meantime, the share of consumers planning to buy a home in the next six months rose in September to the highest in a year, according to a survey by the Conference Board.

Falling borrowing costs should ease some of the affordability problems plaguing the housing industry. Builders including Lennar Corp. have stoked demand by heavily deploying sales incentives, such as buying down mortgage rates, but it's coming partly at the expense of gross profit margins, Bloomberg Intelligence analyst Drew Reading said in a Sept. 20 note.

Builders in August made notable progress in selling off inventory, with the number of completed homes sold reaching the second-highest level since the end of 2006. However, inventory is still robust with 467,000 homes available for sale, near the most since the bloated days of the Great Recession.

"This healthy level of supply should help to maintain momentum for new sales over the rest of 2024, especially with homebuyer interest piqued by declining mortgage rates," Nationwide senior economist Ben Ayers said in a note.

Sales fell in three of four regions, dragged down especially by the Northeast and West. Contract signings in the South, the largest U.S. region, increased to an annualized 459,000, matching the fastest pace since the end of 2021.

New-home sales are seen as a more timely measurement than purchases of previously-owned homes, which are calculated when contracts close. However, the data are volatile. The government report showed 90% confidence that the change in new-home sales ranged from a 15.3% decline to a 5.9% gain.