As housing inventory woes continue to hold buyers back in markets across the US, sales of newly built homes saw a significant rise in November. According to a recent article from Realtor.com, the Commerce Department found that new-home sales rose 16.9 percent from October to November 2018 to a seasonally adjusted annual rate of 657,000. This figure far exceeds economists’ predictions of new-home sales reaching an annual rate of 571,000.
Despite the impressive month-over-month increase of new-home sales, overall home sales in the US actually posted their largest annual decline in seven and a half years, painting a less-optimistic picture of the overall housing market. Still, it’s not all bad news. The National Association of Realtors (NAR) recently stated existing-home sales increased 1.9 percent to a seasonally adjusted annual rate of 5.32 million in November. October’s sales pace was unrevised at 5.22 million units. This marks the second straight month of sales increases.
New Home Sales Up, Existing Home Sales Down
Economists polled by Reuters had forecast existing-home sales falling 0.6 percent to a rate of 5.20 million units in November. Existing-home sales, which make up nearly 90 percent of US home sales, dropped 7.0 percent from a year ago in November, marking the largest annual drop since May 2011.
Realtor.com also cautions that the latest figure represents a “rough estimate that comes with a big margin of error.”
Also contributing to the overall slowdown of home sales, higher mortgage rates and higher home prices have put a dent in purchase activity over the past year. According to Realtor.com and Freddie Mac, the average rate on a 30-year, fixed-rate mortgage rose about 1 percentage point to nearly 5% from the start of 2018 to last November. Fortunately, the average rate has since fallen half a point to just under 4.5%, indicating rates are likely to remain fairly low.
The Inventory Dilemma
According to an end-of-year analysis from Trulia, the drop in US housing inventory has been largely driven by premium homes. In this segment alone, the number of for-sale homes dropped 7.8% year-over-year by the end of 2018. This was then followed by a 2.2% drop in starter homes and a 1.5% decline in trade-up homes. To further exacerbate things, Trulia pointed out that affordability had worsened across all housing segments, leading to slowed purchase activity.
“Despite inventory gains in the most expensive housing markets, prices continue to rise and outpace wage growth – especially in the starter home category,” Trulia writes. “This has further put homeownership out of reach for many first-time buyers.”
With lower inventory, it comes as little surprise that the new-home market could be heating up. However, experts warn that the new home surge could dwindle quickly if affordability doesn’t improve.
Buying a New Home?
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