October 26, 2021 Reading Time: 2 minutes

Sales of new single-family homes posted a strong gain in September, increasing 14.0 percent to 800,000 at a seasonally-adjusted annual rate from a 702,000 pace in August. Despite the gain, sales are down 17.6 percent from the year-ago level and are 19.4 percent below the 993,000 pace in January (see top of first chart). The drop in new home sales since December has been matched by permits for future construction though permits did not see a tick up in September (see top of first chart).

Sales of new single-family homes were up in three of the four regions of the country in September. Sales in the South, the largest by volume, rose 17.5 percent while sales in the West gained 8.2 percent, and sales in the Northeast increased 32.3 percent. However, sales in the Midwest were off 1.5 percent for the month. From a year ago, sales were down between 11 and 34 percent in three of the four regions but are up 7.9 percent in the Northeast.

Despite the strong gain in sales, the total inventory of new single-family homes for sale was unchanged at 379,000 in September, the highest level since October 2008 (see bottom of first chart), putting the months’ supply (inventory times 12 divided by the annual selling rate) at 5.7, off 12.3 percent from August but still 62.9 percent above the year-ago level (see bottom of first chart). The median time on the market for a new home fell in September, coming in at 3.2 months versus 3.6 in August.

Recent headwinds for the housing market include somewhat higher mortgage rates and sharply higher home prices. The average rate of a 30-year fixed-rate conforming mortgage was around 2.9 percent in September. The average rate is up from a low of 2.68 in December but lower than the 3.08 percent in March 2021. The average rate was as high as 4.87 in November 2018 (see second chart).

The median sales price of a new single-family home was $408,800 (see second chart), up from $344,400 in September 2020 (not seasonally adjusted). The gain from a year ago is 18.7 percent. On a 12-month average basis, the median single-family home price is at a record high (see second chart).

Record-high prices and somewhat higher mortgage rates are headwinds, forcing some buyers out of the market. However, the rise of more flexible working arrangements (i.e. remote work) may provide some continued support for less dense housing. It is likely that these conditions will continue to impact the overall housing market, and on balance, further reduce demand, leading to looser supply conditions and slower future price increases.

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals.

Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.

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