Average new home prices fall 6.7%, but higher mortgage rates push payments up

Only 111,000 of the 476,000 new homes for sale are finished. Another 115,000 have not been started, and that is 16.8 months of supply.

New home sales held at 676,000 in September, but the mix behind that number got worse for builders. The Census Bureau reported the annual pace today, and the Conference Board said consumer confidence rose 7.5 points to 91.7 the same morning.

Builders are selling cheaper, unbuilt houses into a 7.32% mortgage market, and the payment still rises. The Federal Reserve decides on rates tomorrow, after a quarter point rise in September by a 12 to 0 vote.

Sales, prices and unfinished homes

Sales barely moved. September's 676,000 is 0.6% below August's 680,000 and 5.3% below a year ago, and Census marks both moves as within its error band. The pace beats the 2026 average of 647,000, the mean of nine monthly readings. January was the low at 576,000.

The mix shifted toward homes not yet built. Completed homes were 380,000 of the annual pace, 11% fewer than the 428,000 a year earlier. Sales of homes not yet started rose 17%, to 82,000 from 70,000, and fewer finished houses pull the average price down.

The fall in the average price was statistically significant. The average new house sold for $472,800, 6.7% less than a year earlier, and Census counts that fall as statistically significant. The median fell to $400,400 from $416,800, which Census does not count as significant.

The median new house is now $17,100 below the National Association of Realtors median existing price of $417,500 for September. New homes now sell below the resale median.

The stock for sale tilts the same way. Only 111,000 of the 476,000 homes for sale, 23%, are finished, and finished stock is down 13% from 128,000 in January. Homes not yet started reached 115,000, the highest in the period shown.

The headline supply figure hides this split. Census puts the stock at 476,000, down 2.3% from 487,000 a year ago, and supply at 8.4 months against 8.2 a year ago. Census does not count that difference as significant. The split by construction stage explains what the headline total misses.

Months of supply by stage: finished homes 3.5, homes under construction 14.0, homes not started 16.8. The 8.4 month headline averages them. A finished home has been listed a median 3.0 months, while a home not yet started has more than a year of stock behind it.

Incentives and monthly payments

Builders pay to lower the buyer's rate, a buydown, mostly on homes not yet finished. D.R. Horton said in July it expects incentives to stay elevated in its fourth quarter, "with incentive levels dependent on demand, mortgage rates and other market conditions."

The same release shows the strain. Horton's cancellation rate on all gross orders rose to 20% from 17% in the June quarter. It held 23,300 unsold homes in a 38,000 home inventory, of which 7,600 were completed.

Executive chairman David Auld said "affordability constraints and cautious consumer sentiment continue to impact new home demand."

The lower price has not kept the monthly bill down. Take a median new house with a 90% loan, a 30 year fixed rate, and principal and interest only. September 2025 cost $2,334 a month at Freddie Mac's 6.35% monthly average. September 2026 costs $2,364 at 6.86%.

At Freddie Mac's 7.32% weekly rate of 22 October, the payment is $2,475, up 6.1% on September 2025. That rate is down from 7.40% the week before but well above the 6.19% of a year earlier.

Rates have moved fast. Freddie Mac's 52 week range runs from 5.98% to 7.40%, so today's rate sits near the top.

Keeping the September 2025 payment at 7.32% would take a median price of $377,500. That is 9.4% below last September and $22,900 below today's median.

On the average price the squeeze is smaller. At 7.32% the payment on $472,800 is $2,923, against $2,838 on the September 2025 average of $506,800, which is 3.0% higher.

Demand and the next builder results

Confidence is not rescuing demand. The index rose 7.5 points to 91.7, only back to June levels, and the Expectations gauge rose 6.9 points to 72.6, which only partly reverses three straight monthly falls.

Fergus McCormick of the Conference Board tied the rebound to easing gasoline prices. He said it was driven mainly by better views of business conditions. The same release says plans to buy a home declined slightly in October.

Existing home sales show the same softness, even though the Conference Board's present situation index rose 8.6 points to 120.4. NAR reported existing sales of 3.99 million in September, up 1.5% on August and 2.2% below a year earlier. Its chief economist Lawrence Yun said August and September were the two slowest months for home sales this year.

NAR's pending sales index, which counts signed contracts on existing homes, fell 7.3% in September and 11.3% on the year. Yun said "market conditions weakened in September due to fast-rising mortgage rates." He also said rates "could be topping out" because they have risen much more than the Fed's hikes.

Resale supply is growing. NAR counts 1.60 million existing homes for sale, 4.8 months of supply, so buyers have more choice than a year ago. New homes are about 23% of all homes on the market.

Builders can still sell at a margin today. Horton's net orders were flat at 23,084 in the June quarter, and its home sales gross margin was 20.7%. It guides to $32.5 billion to $33.0 billion of revenue for the fiscal year. It also guides to 83,800 to 84,300 closings.

The risk is that incentives are eating into the margin. A house sold before it is built can still be cancelled, and Horton's cancellation rate is rising. There are 115,000 homes not started for sale against 82,000 sold at the annual pace. Every start released now is priced at a mortgage rate the builder does not control.

D.R. Horton reports fiscal fourth quarter results on Thursday 29 October. Freddie Mac publishes its next weekly rate at noon Eastern the same day.

If the Fed holds its range at 3.75% to 4% tomorrow and mortgage rates stay near 7.3%, expect Horton's gross margin to come in below the 20.7% of the June quarter, because buydowns on unfinished homes cost margin. A print at or above 20.7% would mean builders are absorbing incentives without margin loss, and the 115,000 unstarted homes would be less of a risk.