Aug 24, 2023 - Economy

A tale of two housing markets

Change in U.S. home sales
Data: FactSet; Chart: Axios Visuals

New home sales climbed again in July, continuing to outpace the existing home market.

Why it matters: The tale of two housing markets shows how surging mortgage rates have gridlocked the market for already-built homes.

The latest: Sales of newly built homes rose to an annualized pace of 714,000 in July, better than analysts had expected.

  • In fact, it was the fastest pace of growth for new homes since February 2022.
  • The numbers, released on Wednesday, came a day after existing home sales posted yet another sharper-than-expected decline in July.

Zoom in: Most existing homeowners are benefiting from the far lower mortgage rates they locked in when they first bought (or refinanced).

  • They're not thrilled with the idea of trying to move now, which would mean selling and getting a new mortgage, just as rates are at the highest level in decades.
  • So they're staying put — which means far fewer homes on the market.
  • As a result, would-be home buyers — especially first-time buyers who aren't benefiting from low rates locked in long ago — are increasingly looking to inventories of new homes.

The impact: First-time home buyers now make up roughly 50% of all purchasers, according to Zillow. Two years ago, that figure was 37%.

The bottom line: While new home sales are growing much faster than existing homes, the latter makes up over 80% of the market. So even if some buyers move into newly built homes, there's not enough to ease what is quickly turning into a housing affordability crisis.

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