New Home Sales Are Rising. So Are Mortgage Rates. How Should Investors React?
Is the recent climb in new home sales sustainable? As homebuilder stocks feel the pressure of higher interest rates, one interesting name is on my radar.
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New home sales jumped to their highest level in over a year on Thursday, giving hope that a sleepy real estate market is finally waking up. The seasonally adjusted annual sales rate of 738,000 in September was the best showing for new homes since May of 2023.
When viewed on a three-year time frame, new home sales are gaining strength and could be about to break out. All it would take is a close above 741,000 annual units. That’s just 3,000 more than the just-announced September figure.
One factor is working in the market’s favor — the hangover from the pandemic-era real estate party is finally starting to dissipate.
Sales were pushed forward during the pandemic, as it became clear to folks that they could work from home — and that home could be located anywhere.
As a result, home sales exploded, along with housing prices. New home prices peaked in October of 2022, at $460,300 according to the St. Louis Fed. As of September, the median price has eased to 426,300.
This is in line with the median sales price of all homes, new and existing. That figure has eased from $442,600 in Q4 of 2022, to its current level of $420,400.
While momentum appears to be on the side of the housing market, mortgage rates are not. This raises the question, is the current pickup in new home sales sustainable?
September new home sales were aided by lower mortgage rates, which have since bumped up. According to Mortgage News Daily, a 30-year fixed rate mortgage (darkest line) currently averages 6.91%. In mid-September, just one month ago, that figure was as low as 6.12%.
Homebuilder stocks are feeling the pressure of higher interest rates. Just last week, the SPDR Homebuilders ETF XHB reached an all-time high (point A). One week later, the homebuilder bellwether has fallen below its 50-day moving average (blue, point B).
An interesting name in the housing market right now is Masco MAS. The Livonia, Michigan-based company is the home of Behr paints, Delta faucets, and other home-related product providers.
While Masco dipped this week along with the entire new home sector, the stock’s volume didn’t increase markedly when compared to XHB’s chart. Unlike XHB and many of its components, Masco also managed to remain above its 50-day moving average (blue).
Masco reports earnings on October 29. If the fundamentals match up with the technicals, I'll consider a long position after Masco's earnings report.
At the time of publication, Ponsi had no positions in any securities mentioned.
