New homes are again attracting buyers while the rest of the housing market is weak

New home sales rose in July, one of the only areas of the housing market showing signs of life.

Newly built home sales rose 4.4% to a seasonally adjusted 714,000 units last month from June’s revised rate of 684,000 units, according to European Central Bank data. Census Bureau. That came in above Bloomberg’s forecast of 707,000 units for July.

The pace of sales was also 31.5% higher than last year’s levels.

The uptick in activity underscores how buyers remaining in the market are still turning to new construction as builders take advantage of the shortage of previously owned homes.

“Despite continued high mortgage rates and inflationary pressures, our net sales orders were up 37% year-over-year as supply increased,” DR Horton CEO David Old said on an earnings call last month. New homes and existing homes at affordable price points are limited and the demographics that support housing demand remain favourable.

The increase in new home sales comes despite mortgage rates finally rising in July – reaching a high of 6.96%, according to Freddie Mac. But the higher the rates, the more likely it is that current homeowners will decide to stay in their existing homes and forgo selling.

Read more: What does a Fed rate hike mean for mortgage and loan rates

That led to lower sales in the resale market, which fell to the lowest level for the month of July since 2010, Lawrence Yoon, chief economist for the National Association of Realtors, said on a press call Tuesday. The level is also the third-lowest pace of sales in the cycle. current housing.

“Two factors are driving current sales activity — inventory availability and mortgage rates,” Yoon said. ‘Unfortunately, both were unsuitable for buyers.’

But it has worked in favor of builders, who welcome buyers frustrated with few options among existing homes.

Because of the imbalance, construction workers did not have to resort to many price cuts to attract buyers in July. Only 22% of builders said they cut prices in July, down from 25% in June and 27% in May, according to National Association of Home Builders.

The median sales price of newly sold homes in July was $436,700, compared to the June median of $415,400, according to the census. The average selling price was $513,000.

The builders’ advantage could change as mortgage rates continue their upward trend, crossing 7% this month for only the third time since 2002.

This affected the sentiment of homebuilders this month. Confidence among builders fell in August, the first decline this year, according to a survey by the firm National Association of Home Builders.

A sold sign is displayed outside a new home under construction in Mechanicsville, Virginia.  (Steve Helper, AP Photo)

A sold sign is displayed outside a new home under construction in Mechanicsville, Virginia. (Steve Helper, AP Photo)

The August Builders Sentiment Survey also found that the share of builders who cut prices rose to 25% in August, after falling for four consecutive months. The percentage of homebuilders using incentives to close sales was 55%, up from 52% in July.

Meanwhile, construction workers have ramped up construction of new homes, which means they will have more of the supplies they need to unload. The government reported that the seasonally adjusted estimate of new homes for sale at the end of July was 437,000, which represents a 7.3-month supply at the current sales rate.

“In terms of future demand, mortgage interest rates will continue to be disincentive…, He said. “There’s not much difference in monthly payment or qualification between, say, just under 7% and a little more than that, but it might put pressure on existing home sellers to be more flexible, and I would expect that would prompt builders to move in and offer incentives to help Continue to move homes.

Gabriela Cruz Martinez is the Chief Personal Finance Correspondent at Yahoo Finance. Follow her on Twitter @__gabrielacruz.

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