Mortgage rates have been falling in recent weeks, but a high near 8% last month took a bite out of new home sales, according to the latest figures from the Commerce Department. Sales of new single family homes fell 5.6% in October — more than expected. But they’re still up, almost 18% over last year.
In fact, newly constructed homes are playing a much bigger role in the housing market today than they have in at least four decades.
High mortgage rates are gonna put a damper on home sales no matter what, said Anirban Basu, an economist and CEO of Sage Policy Group. But in today’s housing market new construction has some advantages for buyers, namely, it’s what’s available to them, Basu said.
The number of existing homes on the market is near record lows, largely because of what Basu called the lock-in effect.
“You got folks out there with a 30-year fixed mortgage rate at less than 3%,” he said. “Even if you wanted to move, you’re not moving. And so that home is not available for purchase.”
New homes now account for about a third of all houses for sale, more than double the historical average.
Nitin Gupta is a real estate agent in Dallas Fort Worth. He said with prices and mortgage rates high across the board, people are thinking, “Okay, we may as well get a new home.”
“Where you don’t have to worry about maintenance or repairs. And you’re getting the latest and greatest design and architecture and amenities,” he said.
And builders tend to make more motivated sellers, said Daryl Fairweather, chief economist at Redfin.
“Builders have very different incentives than existing homeowners, they don’t care what rates were a couple of years ago, they just want to get their inventory sold for the highest price the market supports,” she said.
Developers have been offering deals that offset the mortgage rate, cut prices or add free upgrades.
Because today’s new homes broke ground during yesterday’s low interest housing boom.
“So they were a bit more aggressive than they would have been if they knew rates were going to approach nearly 8% for a 30 year fixed rate,” Fairweather said.
Since then, she said, new construction has slowed, meaning deals down the line could be harder to come by.
