Despite mortgage rates that are at a 23-year high, new home sales posted a double-digit percentage gain in September because of a lack of inventory in the resale market.

Sales of newly built, single-family homes in September increased 12.3% to a 759,000 seasonally adjusted annual rate, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The pace of new home sales in September was up 33.9% from a year ago.

“While more buyers are turning to new construction because of a lack of existing inventory, higher mortgage rates that are approaching 8% are expected to slow the market in the coming months as affordability conditions continue to worsen,” said Alicia Huey, chairman of the National Association of Home Builders (NAHB) and a custom home builder and developer from Birmingham, Ala. “Higher interest rates not only raise the cost of housing for buyers, but for builders as well because of increased costs for financing construction loans.”

“New home sales surged in September largely due to the low existing home inventory rate, as many homeowners with attractive mortgage rates are electing to stay put rather than purchase a move-up home with a much higher interest rate,” said Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis. “To compensate for this high interest rate environment, more builders are building smaller homes, which has resulted in a decline in the median new home price.”

A new home sale occurs when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the September reading of 759,000 units is the number of homes that would sell if this pace continued for the next 12 months.

New single-family home inventory in September was 435,000, down 5.4% compared to a year ago. This represents a 6.9 months’ supply at the current building pace. A measure near a 6 months’ supply is considered balanced. Completed, ready to occupy inventory is up 39.6% from a year ago, however that inventory type remains just 17% of total new home inventory.

The median new home sale price in September was $418,800, down 3.3% from last month, and down 12.3% compared to a year ago. Pricing is down both due to builder incentive use and a shift towards building slightly smaller homes.

Regionally, on a year-to-date basis, new home sales are up in all four regions: up 12.8% in the Northeast, 0.5% in the Midwest, 5.4% in the South and 2.5% in the West.

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