Purchases of new homes rebounded in August from a nine month low but remain below the average for the year, showing the impact of the rise in mortgage rates that began in May and reached a two year high in this month.
Sales increased 7.9 percent to an annualized rate of 421,000 units, in line with forecasts and following a downwardly adjusted 390,000 pace in July. In the first half of the year annual sales averaged 446,000 each month.
The average rate of a 30-year mortgage had climbed steadily from 3.40 percent in the beginning of May to 4.64 percent in early July and then 4.67 percent two weeks ago according to Bankrate.com. The steepest rise came in the last two weeks of June when mortgages surged from 3.94 percent on June 14th to 4.58 percent on June 25th. This undoubtedly contributed to the steep drop in new sales from 454,000 in June to 390,000 in July. The nationwide average for a 30-year mortgage was 4.32 percent yesterday.
Sales of new homes are far below their historical averages. Over the last ten years the annualized monthly average is 682,000; the 15 year average is 765,000 and the 20 year average is 761,000. These averages do not take into account the 22 percent rise in the U.S. population since 1993, from 258 million in 1993 to 314 million today.
In 1993 and 1994 the American population averaged 259 million people and new home sales averaged 671,000 each year. To duplicate that sales rate with today population would mean 819,000 new home sales annually, a pace not seen since May 2007 in the middle of the four year collapse of the housing bubble.
Chief Market Strategist