Sales of new homes fell in August, showing that the housing market is still feeling the burden of higher mortgage rates.
New home sales fell 8.7% from July to August to a seasonally adjusted annual rate of 675,000, according to a report Tuesday from the Census Bureau. The reading comes amid persistently higher mortgage rates, which are dampening the market.
Sales in July were 5.8% higher than in August 2022.
The median sales price for a new home was $430,300 in August, an decrease from the month before.
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Mortgage rates are much higher now than they were a year ago because the Federal Reserve has been hiking rates consistently since March of last year. Mortgage rates are now more than double what they were right before the Fed started raising rates — causing major issues with housing affordability and contributing to the pain already being imposed by inflation.
As of Tuesday, the average rate on a 30-year fixed-rate mortgage has soared to 7.49%, according to Mortgage News Daily. The last time rates were this high was more than two decades ago.
During the height of the pandemic, the Fed had slashed its interest rate target to near zero, pushing down mortgage rates to historic sub-3% levels. The prospect of ultra-low mortgages caused a massive housing boom that caused the housing market to explode with activity and prices to soar.
Because mortgage rates have increased so much, owners of existing homes who have mortgages with rates locked in at those low pandemic levels are putting off selling because they want to keep their historically low rates. That means less existing home inventory on the market, making new homes more of a hot commodity.
Tuesday’s new home sales report follows last week’s release of existing home sales data for August by the National Association of Realtors. That showed that existing home sales fell by 0.7% from July to August to a seasonally adjusted rate of 4.04 million.
The number of housing starts, which measures the change in the number of new residential buildings that began construction, ticked up in July, in part because of the inventory pressure from consumers holding on to their existing homes.
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Further complicating the housing landscape is the role of housing construction. New housing construction actually fell in August, which could have implications for new home sales data down the road.
Housing starts, the change in the number of new residential buildings that began construction, fell 11.3% from July to this past month, according to a report from the Census Bureau. They are now at a seasonally adjusted annual rate of 1.283 million. From August 2022, they fell 14.8%. That marks the lowest level since June 2020.