Rising Trend Of U.S. New Home Sale Prices Breaking Down

What had been a well-established, rising trend for median U.S. new home sale prices appears to have begun breaking in the fourth quarter of 2018.

As measured by the trailing twelve month average of median new home sale prices in the United States, the most recent trend that had begun in September 2015 looks to have lasted into October 2018, after which, the trailing year average of these median prices has dropped significantly. The following chart shows the three most recent linear trends for the trajectory of new home sale prices in the United States, covering the period from July 2012 through December 2018.

Trends in Trailing Twelve Month Average of Median U.S. New Home Sale Prices, July 2012 through December 2018

We calculate the trailing twelve month average of median new home sale prices for two reasons. First, it helps take annual seasonality in the data into account, and second, it smooths out the noise in fairly volatile monthly data to help make trends in the data more visible. The next chart shows the raw monthly data for median and average new home sale prices in the U.S. from January 2000 through December 2018, where we find that one reason for the sudden decline in the trailing year average for new home sale prices is that they peaked in December 2017, which has now dropped out of the trailing twelve month average calculation.

Median and Average Monthly U.S. New Home Sale Prices, January 2000 through December 2018

The primary factor behind that development is the rapid rise of mortgage rates in the U.S. during 2018, which rose nearly a full percentage point from November 2017 through November 2018 before dropping in December 2018, following the Federal Reserve's sudden decision to back off its established policy of steadily hiking interest rates, after one last hike in December 2018. The following chart shows 30-year conventional mortgage rates from January 2000 through December 2018.

30-Year Conventional Fixed Mortgage Rates in U.S., April 1971 through December 2018

While in historical context, mortgage rates would appear to be low, it is important to note that in rising from 3.9% in November 2017 to 4.9% in November 2018, the amount of interest that a home buyer would need to pay in their first year of home ownership would have increased by roughly 27%.

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