New Home Sales Continue Upward Trend Amid Extremely Limited Inventory of Existing Homes

Key Takeaways:

• Durable goods orders fell 5.2 percent in July following a 4.4 percent jump in June, though the volatility was due entirely to large swings in nondefense aircraft orders, according to the Census Bureau. Core capital goods orders (nondefense excluding aircraft) increased 0.1 percent, while shipments in the same category, which are a proxy for business fixed investment, declined 0.2 percent.
• Existing home sales declined 2.2 percent to a seasonally adjusted annualized rate (SAAR) of 4.07 million in July, according to the National Association of REALTORS® (NAR). The number of homes available for sale rose 3.7 percent to 1.11 million, though that’s the lowest number of homes for sale in July on record. The months’ supply rose two-tenths to 3.3. Compared to a year ago, the median sales price of an existing home, which does not adjust for the property type or mix of homes sold, rose 1.9 percent, according to the NAR, the first positive annual growth rate since January.
• New single-family home sales rose 4.4 percent to a SAAR of 714,000 in July, the fastest pace since February 2022, according to the Census Bureau. The months’ supply moved down two-tenths to 7.3 as the gain in home sales outpaced the 2.1 percent increase in new homes for sale. The number of homes for sale that have not yet been started rose 11.3 percent to 108,000, the highest level in survey history.

Forecast Impact:

Shipments of core capital goods, which is a proxy for business fixed investment, declined for the second consecutive month in July. This indicates that the 7.7 percent annualized growth rate of business investment in the second quarter is likely to slow substantially in Q3, in line with our expectations for relatively stagnant growth in that measure.

Housing continued to be a tale of two markets in July. Existing sales remained near their lowest annual rate since 2009, while new home sales are hovering near the 2019 high of the pre pandemic business cycle. We expect that new home sales will continue to outperform relative to existing sales as existing homeowners remain “locked in” to their low mortgage rates and thus more hesitant to move. While both figures came in approximately in line with our forecast, the recent surge in mortgage rates to above 7 percent likely presents more downside risk to new home sales, as builders will have a more difficult time buying rates down to a level that is acceptable to consumers. Meanwhile, we believe the majority of current existing sales are being driven by less interest-rate-sensitive buyers; therefore, while higher mortgage rates will further strain affordability and put further downward pressure on existing sales, we believe the downside risk to existing sales is likely limited.

Nathaniel Drake
Economic and Strategic Research Group
August 25, 2023

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic and Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.