Sales of new homes unexpectedly grew despite broader turmoil in housing markets, a surprising development after months of declines.
New home sales in August ticked up 28.8% to a seasonally adjusted annual rate of 685,000, according to a report Tuesday from the Census Bureau. While the increase is good news for the housing market, new home sales, on balance, have taken a massive hit in recent months as the Federal Reserve hikes interest rates.
Still, the new report might at least temporarily allay economists’ fears that the new home sales numbers, which have declined precipitously from a peak of more than a million per month in 2020, are a sign the country is teetering on the verge of a recession.
“New home sales and the burst of confidence may not last, but at the moment, the public has more money and is spending it, despite the darkening skies of recession,” said Chris Rupkey, chief economist at FWDBONDS. “Wall Street is scared to death of the Fed’s attack on inflation, but consumers are not as easily frightened.”
It is worth noting, though, that new home sales are a volatile metric, and August’s report may overstate underlying sales because it does not fully account for the recent run-up in cancellations due to surging mortgage rates.
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The median sales price for a new home was $436,000 in August, a decrease from the month before.
The news comes the week after it was revealed that sales of existing homes fell for a seventh straight month and are now at the lowest level since early in the pandemic.
Existing-home sales tumbled by 0.4% in August to a seasonally adjusted annual rate of 4.8 million, according to a report by the National Association of Realtors. Sales were down nearly 20% from a year ago.
Mortgage rates are highly responsive to the Fed’s interest rate targets. Mortgage rates, which bottomed out in 2021, have been rising fast since the central bank began raising interest rates this year.
As of Tuesday, the average 30-year fixed-rate mortgage was 6.29%, up more than 3.4 percentage points from a year before, according to Freddie Mac. The average 15-year fixed-rate mortgage popped to 5.44%. The level marks the highest point for mortgage rates since the Great Recession.
“The housing sector is the most sensitive to and experiences the most immediate impacts from the Federal Reserve’s interest rate policy changes,” said Lawrence Yun, NAR chief economist. “The softness in home sales reflects this year’s escalating mortgage rates. Nonetheless, homeowners are doing well with near nonexistent distressed property sales and home prices still higher than a year ago.”
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The Fed has been on a historic rate-hiking kick. Last week, the central bank conducted a rate hike of three-quarters of a percentage point, or 75 basis points. It was the third such increase in a matter of four months.
As inflation continues to appear more enmeshed in the economy than thought and the Fed keeps hiking rates, the odds of a recession have been on the rise. The stock market has shed a massive amount of value over the past two weeks as investors weigh the increasing likelihood of a broad-based economic slowdown.