Zonda Newsfeed: New Home Sales Have Best August Since 2007

The Federal Reserve raised short-term rates for the eighth time since 2015 earlier this week. The increase is part of the normalization process for rates and is occurring because the economy is doing well; one of the Fed’s roles is to make sure the economy does not overheat. In the housing market, while a 25-basis point jump in the federal funds rate does not equate to a like-for-like change in mortgage rates, the news comes at a time where there has been some resistance from buyers about current home prices. The latest move by the Fed brings rates back to top-of-mind for consumers after being relatively flat from the end of June to the middle of September, and, in some cases, will help buyers get off the fence.

– Ali Wolf, Director, Economic Research at Meyers Research

PERSPECTIVE IS EVERYTHING FOR NEW HOME SALES

Forget the headlines, there are still pockets of strength in the housing market.

• New home sales hit the best August since 2007 at 629,000. There have been ten months over the past four years where new home sales topped the latest read.
• Year-to-date new home activity is 7% higher than last year and 14% higher than 2016.
• Looking beyond national trends, Zonda data shows that contracts vary wildly by metro. Some markets saw strong gains in contracts over the year (e.g. Dallas, Houston, and Austin), while others saw sizeable declines (Los Angeles and Seattle).

SUPPLY HOLDS BACK EXISTING HOME SALES

The broadest measure of national home sales, representing 90% of the overall market, shows slower activity on the year.

• The August year-over-year growth rate historically has been low (roughly 1% for 2016 and 2017), but this year, the growth rate slipped negative.
• On a year-to-date basis through August, sales are down 2% compared to last year. If you look compared to 2016, sales are still up 1%.
• While volume is lower, velocity is quicker. It took homes on average 29 days to sell in August, down from 30 days this time last year. This suggests the slower sales pace is supply related instead of demand.

RATES HIT THE HIGHEST LEVEL SINCE 2011

The rise in mortgage rates corresponds with higher 10-year Treasury yields.

• Mortgage rates in January averaged 4.03% compared to September’s 4.61%.
• Historically, the correlation between mortgage rates and home sales has been weak; during some periods there was a positive correlation and in others, there was a negative relationship. In today’s marketplace, however, we may see some impact on sales.
• Higher rates are hitting the market at a time where buyers are already balking at home prices and will instigate thoughtful considerations of what they can actually afford. The monthly payment based on the median priced new home of $329,000 jumped roughly 9% this year based on rising rates alone.

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