Kiplinger Housing Outlook: New-Home Sales Rebound as Builder Price Cuts Entice Buyers
Aggressive builder discounting and rate buydowns drive a surge in new-home sales.
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The pace of home price gains ticked up slightly in July, but remains sluggish relative to broader inflation. The S&P Cotality Case-Shiller U.S. National Home Price NSA Index posted a 1.9% annual gain in July, up from a 1.6% annual rise in June. On a month-over-month, seasonally adjusted basis, national home prices gained 0.3%. With July’s headline inflation rate at 3.4%, U.S. home values fell in real terms for the 14th consecutive month. Eastern and Midwestern housing markets continue to outperform, while many Western and Sun Belt metro areas face price declines. Chicago reported the strongest annual gains for the fifth straight month (+6.9%), followed by New York City (+5.8%) and Cleveland (+4.2%). At the other end of the market, Seattle saw the steepest price drop (-1.6% year-over-year), followed by Las Vegas (-1.3%) and Denver (-1.1%).
Building conditions remained choppy in August, as total housing starts slipped 2.6% to an annualized rate of 1.275 million units, following an upwardly revised pace in July. The monthly decline was driven by a sharp 21.7% drop in multifamily construction (to 357,000 units), while single-family starts jumped 7.6% to 918,000 units — the highest level since March. Forward-looking building permits fell 2.7% to an annualized rate of 1.394 million units, reflecting broad-based softness across both single-family and multifamily segments and signaling flat to lower activity ahead. Regional starts declined in the Northeast, Midwest and South, but surged in the West (+32.4%). Meanwhile, builders continue to navigate high borrowing costs, with mortgage rates near 7% and a sizable backlog of homes under construction.
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New-home sales rebounded sharply in August, reaching their highest pace of the year. Sales of new single-family homes rose 6.4% in August to 684,000 annualized units, recovering from July’s revised pace of 643,000 units. On an annual basis, sales remain down 2.0%. Regional performance was polarized: Sales surged in the Midwest (+84.9%) and rose moderately in the South (+6.9%), but plummeted in the Northeast (-36.1%) and the West (-15.2%). Stronger sales pushed the supply of unsold new homes down to 8.5 months at the current sales pace. The median price of a new home stood at $393,700 (down 5.8% year-over-year), while average prices dropped 9.1% on the month to $478,700. With 30-year fixed mortgage rates inching toward 7% in August, aggressive builder discounting and mortgage rate buydowns proved crucial in enticing buyers off the sidelines.
Existing-home sales slipped in August for a third consecutive month. Sales of previously owned homes fell 2.0% to an annualized rate of 3.98 million units, pulling back from July’s pace of 4.06 million (-1.2% year-over-year). Single-family sales fell 1.9% to 3.62 million seasonally adjusted annual units, while condo and multifamily sales fell 2.7% to 0.36 million. Regional sales declined in the Northeast (-4.0%), Midwest (-3.1%) and South (-1.6%), while remaining flat in the West. Total existing inventory rose 3.2% to 1.62 million units (up 5.9% year-over-year), pushing supply up to 4.9 months at the current sales pace — the highest level in over a decade. The median existing home’s price dropped 1.7% from the prior month, to $429,100 (but still up 1.6% year-over-year). With mortgage rates rising above 7% in late September and high prices continuing to constrain affordability, existing-home sales are expected to remain subdued near historical lows.
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