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Selecting a new book next Tuesday.
New Home Sales Down But Still Up Year-Over-Year
New home sales fell 8.7% in August compared to July, according to the Census Bureau. The seasonally adjusted annual rate was 675,000. However, new home sales were still up 5.8% from a year ago.
This shows that while higher interest rates are starting to cool demand month-over-month, the housing market remains strong overall compared to 2021.
Housing Market Slowdown Benefits Buyers and Sellers
As the housing market cools due to higher mortgage rates, this benefits both buyers and sellers in the long run. Buyers will face less competition and more negotiability on home prices. Sellers will buy their next home in a similarly softened market.
This is especially true for move-up sellers. The high-end market tends to cool first. So sellers can take advantage of equity gains from their current home while purchasing their next home for potentially less.
Housing Key to Broader Economy
The housing market is crucial to the overall economy. Housing makes up almost 16% of GDP. For Q4 2022, residential fixed investment accounted for 4% of GDP, equating to $1 trillion at an annual pace.
As housing slows in reaction to higher rates, so does broader economic growth. This is the intended consequence of the Fed’s policy – cooling housing to reduce inflationary pressures.
However, if prices moderate just enough to offset some of the rate hikes, demand could come roaring back. The solution is increased housing supply, not just dampening demand. We need to build faster to properly re-balance the market.
