Rising mortgage rates and abundant supply give homebuilders an advantage over existing home sellers because they are able to offer buyers significant interest rate discounts while offering more options. These advantages are evident in the data.
U.S. Census Bureau and U.S. Department of Housing and Urban Development According to reports, new home sales in July reached a seasonally adjusted annual rate of 739,000 units. Compared with June, the increase was as high as 10.6%, and the annual increase was 5.6%. While these numbers were better than expected, house line Chief analyst Logan Mohtashami said other data pointed to higher prices.
“New home sales growth was better than expected, but there were signs of that earlier,” Motashami said. “HMI Builder Survey data showed a two-month decline in demand for single-family homes over the next six months. Slightly positive growth.
“Purchase application data increased last month in the area of new home sales, a monthly survey. And toll brothers commented [in its earnings call] They have better traffic in August as the rates are even lower.
But the dynamics that give homebuilders the upper hand are changing. Rates have been slowly falling, with the 30-year fixed rate on a conventional loan currently sitting at 6.67%, according to the HousingWire Mortgage Rate Center. They are poised to fall further.
Just minutes after the new home sales report was released, Fed “The time has come for a policy change,” Chairman Jerome Powell said during a speech at the Kansas City Fed’s annual meeting. The housing industry was already expecting a rate cut in September, and the comments were the clearest sign yet that it would happen.
Existing home sales remained sluggish in July, with a quarterly increase of 1.3% and an annual decrease of 2.5%. However, the supply of existing homes has increased by 19.8% year-on-year. Based on the current sales rate, the number of months of supply has reached 4.0, which is higher than last year’s level.
Meanwhile, the supply of new homes has stalled. In July, new homes for sale rose at a seasonally adjusted annual rate of 462,000 units, equivalent to 7.5 months’ supply. An annual decrease of 10.7%.
As the inventory gap between new and existing homes narrows and home prices decline, homebuyers who have been marginalized by affordability issues will be better able to purchase existing homes.
“The increase in the number of existing homes for sale could dampen buyer interest in purchasing new homes.” Bright MLS Chief Economist Lisa Sturtevant said in a statement. “With lower interest rates and more options, more homebuyers are expected to be on the market this fall. However, the new home market may have lost some of its edge as buyers can find existing homes at lower prices, while Sellers are increasingly willing to negotiate.
Another long-term factor is the 2024 election. Democratic presidential candidate Kamala Harris has released a housing plan that includes $25,000 in down payment assistance for first-time homebuyers, which will likely come in the form of direct aid. The Harris campaign also proposed building 3 million new rental and for-sale homes through tax incentives for builders.
Republican candidate Donald Trump hasn’t put forward much of a plan, although he and his running mate J.D. Vance have echoed calls for aid to first-time homebuyers while also claiming that cracking down on illegal immigration will make more available housing for U.S. citizens. .
If Harris wins and implements her housing plan when she takes office, tax incentives for builders could lead to a busy housing market in 2025.
