# New home sales dip slightly in September, but remain strong going into fall

Last month, the government had reported that new-home sales had exceeded an annual rate of 1 million for the first time since 2006. The government uses a small sample size to produce the new-home sales report, which makes it prone to significant revisions like this.

Economists polled by MarketWatch had expected home sales to increase to a median pace of 1.033 million.

What happened: New home sales fell a staggering 28.9% in the Northeast, followed by much smaller declines in the Midwest and the South. Comparatively, the West was the only region to experience an increase in sales with a 3.8% jump.

The decline in September aside, year-to-date new home sales are running nearly 17% ahead of the pace set by this time last year.

The median sales price in July was $326,800, up from August’s median price. The inventory of new homes was 284,000, representing a 3.6-month supply at the current pace of sales. A 6-month supply is considered the benchmark for a balanced market.

The big picture: Although most economists anticipated sales to rise in September, that is an incredibly rare occurrence. An analysis of past sales data by Regions Financial Corp. chief economist Richard Moody found that since the government began tracking this data in 1963 new home sales have only increased between August and September on four occasions.

The number of homes sold but not yet started was up in September from the previous month, a sign that builders are struggling to keep pace with the demand for homes. The monthly decline aside, low mortgage rates continue to fuel demand among buyers. And with the inventory of existing homes for sale dropping to record lows, many buyers will be forced to turn to the market for newly-constructed properties.

By that same token, though, interest rates could come to represent a headwind for the market, Moody said. “Despite the recent strength of sales, affordability is a growing concern, even more so should mortgage interest rates follow yields on longer-term Treasuries higher,” Moody wrote in a research note.

What they’re saying: “Looking ahead, builders are already well-positioned in these very markets to deliver homes featuring today’s top desirable amenities: more space, new kitchens, home offices and gyms, as well as outdoor access. The only challenge for builders is navigating the rising costs of land and building expenses,” said George Ratiu, senior economist at Realtor.com.

Market reaction: The Dow Jones Industrial Average
DJIA,
-1.84%
 and S&P 500
SPX,
-1.37%
 were down Monday morning amid a rise in coronavirus cases and concerns regarding the prospects of another stimulus package.

Shares of home-building firms PulteGroup
PHM,
-2.16%
 , LGI Homes
LGIH,
-2.45%
 , and Lennar Corp.
LEN,
-3.20%
 were down following the release of the new-home sales report.