The United States economy faced a significant decrease in the purchase of new home construction in August a possible signal of a possible recession. The decline in home purchases also comes as interest rates reach near a recent high, which affects every part of the American economy.
Overall sales of new homes fell by 8.7% in August month over month, according to the U.S. Census Bureau. The overall number of new homes sold during that month was 675,000.
The number of new homes sold declined to their lowest level since March of this year.
CNBC reported that the expected number of new homes sold is expected to fall to 600,000 by the end of 2023.
The decline comes as overall interest rates increased to 7.48% in August, up from just over 7% in July.
Overall, the median new house price increased to more than $430,000, which represents a 2% decline since last August.
A recent survey by the National Association of Home Builders found that almost a third of builders have cut prices in September, which represents a higher rate compared to the previous month. This represents the highest rate of home builders decreasing prices since last December. Overall, the stated average price cut was 6%.
The decline in new home construction also comes as the Federal Reserve may continue increasing rates in order to tamp down persistent inflation that has affected Americans since the start of the Biden administration in 2021.
— Jeremy Redfern (@JeremyRedfernFL) September 25, 2023
Minneapolis Federal Reserve President Neel Kashkari said that there is about a 40% chance that the central bank will significantly increase interest rates.
Kashkari wrote that the current U.S. economy is nearing “high-pressure equilibrium,” which could continue increasing inflation.
“These dynamics raise the question, How tight is policy right now? If policy were truly tight, would we observe such robust activity?” he asked.
The central bank official wrote that even with current higher interest rates, it is possible that inflation will continue in further months.
In this case, “we would have to push the federal funds rate higher, potentially meaningfully higher.”