Builders warned of a slowdown in home sales. And they were right – except the numbers are even worse than expected.
Sales of newly built homes dropped 5.5 percent in September compared with August, and were 13 percent lower compared with a year ago, according to the U.S. Census. This was well below predictions, even with higher rates factored in.
The census number is key because it is based on signed contracts in September, not closings as existing home sales from the National Association of Realtors are. The census numbers measure buyers out shopping for homes in September, already seeing higher rates and deciding if they can still afford to make the deal. Clearly fewer could.
September's sales level of 553,000 annualized is the worst since December 2016. The three-month sales average has fallen to 580,000, compared with the six-month average of 607,000 and the 12-month average of 631,000. Some will blame hurricanes in the South for the weakness, but sales in the Northeast fell to their worst level since 2015, and sales in the West, where prices are highest, fell harder than the South. Part of that may be new tax laws reducing deductions for state and local taxes. The analysts are not sugarcoating it.
"This number really sucked," wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group, noting that August's read was also revised lower. "Anyone watching home builder stocks or watching the data all year should not be surprised but its's clear this important area of the US economy, highly sensitive to price and rates, has obviously slowed sharply."
Affordability has been weakening all year, as home prices overheated due to a shortage of houses for sale. But now supply is rising for both existing and newly built homes. In fact, September's supply for the builders came in at 7.1 months, which is leaning toward an oversupply. The supply of existing homes for sale has been rising on an annual basis for three months.