New-home sales edged up 0.2% last month to a seasonally adjusted annual rate of 467,000, the Commerce Department reported Friday. The report also revised down the August sales rate to 466,000 from 504,000.
That downward revision detracts from Septembers subsequent gain, says Andrew Grantham of CIMB WM Economics in a note to analysts.
“Despite the negative revisions, the new data doesn’t change the overall picture of a gradually improving housing market, and as such should see little market reaction,” he adds.
“On the revised data, the rates recorded in both September and August were slightly above the previous peak reached in mid-2013, although the 6 month average shows little discernable uptrend,” he says.
The pace of sales for newly built homes has improved a mere 1.7% so far this year compared to 2013. Only the South has experienced gains in buying year-to-date, while purchases have fallen in the Northeast, Midwest and West.
Housing has struggled to fully rebound since the recession ended more than five years ago. Many potential buyers lack the savings and strong credit history needed to afford a home, causing them to rent or remain in their existing houses instead of upgrading.
Construction and buyers of new homes have trickled back from the worst of the bust, but new-home sales remain drastically below the annual rate of 700,000 during the 1990s.
Sales in the most expensive Western states declined in September, reversing some of the gains made in August. Because homes are pricier in the West, that pushed down the median price for a new home to $259,000 from $286,800 in the prior month.
Analysts noted that the new-home sales report from the government is notoriously volatile from month to month, yet sales have basically been stuck in place for the past few years.
“There is little evidence that the new single-family housing market is decisively breaking out of its medium-term flat pattern,” said Joshua Shapiro, chief U.S. economist at the forecasting firm MFR.
Some of the financial pressures on homebuyers are starting to ease, yet it’s unlikely that will boost sales of new homes in the final months of this year.
Over the past two weeks, federal regulators have unveiled plans to loosen down payment requirements, and mortgage rates have tumbled below 4%. Along with a slowdown in price growth, these factors could eventually help usher more buyers into the real estate market.
Average rates for a 30-year mortgage fell to 3.92% from 3.97% last week, the mortgage company Freddie Mac reported. That is the lowest level since June 2013 and marks a solid decline from average rates that began the year at 4.53%. When rates fall, it becomes cheaper for people to borrow and makes homes more affordable.
“Continued strength in the labour market should support sales longer term, while the recent dip back in mortgage interest rates could provide a short-term boost as well,” says Grantham.
But many potential buyers are unable to upgrade to a new home by selling their current home, as prices still have yet to exceed mortgage debt for much of the country.
More than 8 million homes are “seriously underwater,” representing 15% of all properties with a mortgage and roughly $1.4 trillion worth of negative equity, according to the housing data company RealtyTrac. The lasting damage from the housing bust continues to weigh on the market, preventing some homeowners from upgrading to larger houses and limiting the options of buyers.
Builders have yet to meaningfully ramp up construction of single-family houses.
Almost all of the 6.3% growth in housing starts last month came from apartments and multi-family construction, the Commerce Department reported. Starts for single-family houses rose just 1.1% in September compared to the prior month.
Increased apartment construction reflects a broader shift toward renting. Many would-be buyers endured the loss of their financial savings and potentially their jobs during the recession. As wages have barely surpassed inflation during the recovery, a broad swath of Americans lack the income needed to buy a house.
The troublesome housing landscape has created a paradox: It’s ostensibly cheaper to own for the time-being but more people are stuck renting, according to an analysis from the real estate data firm Trulia. A recent report by the firm found that current mortgage rates have made it 38% cheaper to buy a home rather than renting, based on a seven-year timeframe.
“Consumers tell us that the main obstacle to homeownership is the down payment,” said Jed Kolko, chief economist at Trulia in the report. “For those would-be homeowners–especially first-timers without savings or equity from another home–a low-down-payment mortgage might be the only option.”
Federal regulators have announced plans this month to lower the down payment requirements for some Fannie Mae and Freddie Mac programs to 3% from 5%.