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New Home Sales Soar, but Less and Less to Buy as Prices Continue to Rise

Aug. 26, 2015
Mortgage Rates, Mortgages
New Home Sales Soar but Less and Less to Buy as Prices Continue to Rise
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Potential homebuyers are still enjoying the prospect of financing a home with mortgage rates near 4%, but the challenge remains: finding something to buy. Home sales are soaring, in spite of rising prices, and eating up already low inventories of available homes.

In a report issued this week, the U.S. Census Bureau said sales of new single-family houses in July were up 5% from June — and are up 26% from one year ago.

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Builders must offer more affordable options

However, chief economist Jonathan Smoke says home sales could be even better.

“The main holdback to increased sales remains supply, but that’s precisely why home prices are rising consistently at above-normal rates,” Smoke said in a statement.

Tuesday, the S&P/Case-Shiller national home price index reported a 4.5% year-over-year increase in June. Later in the day, the Federal Housing Finance Agency house price index estimated annualized price growth at an even higher 5.6% pace.

“The median new home price, $285,900 in July, increased for the first time since February, which is a hint that part of the lack of growth is a result of builders not fully offering more options at affordable price points,” Smoke said. “For the new home market to completely recover to normal levels, the entry level buyer must be embraced.”

Watch the Fed — and Wall Street

Where is the housing market headed? Although many analysts expect the year to finish strong, with continued sales momentum in spite of higher prices, one researcher says a reversal could be triggered from one of two possible scenarios.

“A one quarter-point increase in the Fed funds rate won’t derail housing,” David M. Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, said in a statement. “However, if the Fed were to quickly follow that initial move with one or two more rate increases, housing and home prices might suffer.”

And Blitzer says Wall Street could also play a role in a housing setback.

“A stock market correction is unlikely to do much damage to the housing market; [but] a full blown bear market dropping more than 20% would present some difficulties for housing and for other economic sectors,” he added.

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Hal Bundrick is a staff writer at NerdWallet, a personal finance website. Email: [email protected] Twitter: @halmbundrick

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