- New home sales fell by 5.6% to 679,000 units
- The median home price fell 17.6% to $409,300 compared to last year.
Rising mortgage rates affect new home sales in the US in October
by aparodyoflife ·
WASHINGTON (Reuters) – Sales of new single-family homes in the United States fell more than expected in October as higher mortgage interest rates put pressure on buyers even as builders cut prices, but the setback is likely temporary amid… A persistent shortage of previously owned housing in the United States. market.
The decline in sales announced by the Commerce Department on Monday was in line with a recent deterioration in homebuilder sentiment, which came as the interest rate on 30-year fixed mortgages approached 8%, leaving builders anticipating a slowdown in buyer traffic. Mortgage rates have since retreated from two-decade highs and are at levels last seen in late September, which could pave the way for a rebound in sales.
“The new home market remains very strong by any historical standard, and continues to be boosted by very low existing home inventory,” said Daniel Filber, an economist at Nationwide in Ohio.
The Commerce Department’s Census Bureau said new home sales fell 5.6% to a seasonally adjusted annual rate of 679,000 units last month. The September sales pace was revised down to 719,000 units from the previously reported 759,000 units.
Economists polled by Reuters had expected new home sales, which represent 15.2% of US home sales, to decline to an average of 723,000 units. This share is the largest in at least a decade.
New home sales are calculated at contract signing, making them a leading indicator of the housing market. However, it can be volatile on a monthly basis. Sales rose 17.7% year-on-year in October.
Monthly sales rose in the populous Northeast and South. But they declined in the Midwest, the most affordable region, and in the West, where housing is expensive.
The supply of previously owned homes on the market is about 50% below its pre-pandemic level, according to the National Association of Realtors, which reported last week that home sales fell to their lowest level in more than 13 years in October.
Most homeowners have mortgage interest rates below 3%, making many reluctant to sell, which boosts demand for new construction.
Stocks on Wall Street were mixed. The dollar stabilized against a basket of currencies. US Treasury bond prices rose.
The interest rate on a 30-year fixed-rate mortgage jumped to an average of 7.79% in late October, the highest level since November 2000, according to data from mortgage financing agency Freddie Mac. Mortgage rates rose as the Federal Reserve aggressively raised interest rates to fight inflation.
The 30-year mortgage rate has fallen in recent weeks, averaging 7.29% last week, tracking the decline in the 10-year Treasury yield on optimism that the US central bank has likely raised interest rates and could begin easing monetary policy by Mid-2024.
“We look for new home sales, a more favorable indicator of housing demand, to rebound in November or December as mortgage rates fall again,” said Veronica Clark, an economist at Citigroup in New York.
The median price of a new home in October was $409,300, a 17.6% decrease from last year. This was the largest percentage drop since the government began tracking records in 1964 and may reflect incentives, including price cuts, offered by builders to attract buyers.
The National Association of Home Builders said this month that more than a third of builders reported cutting home prices in November. Price cuts have been the norm this year.
Economists cautioned against reading too much into falling prices, noting that other measures such as the Federal Housing Finance Agency’s home price index showed strong price growth.
“High prices are also impacting home buying activity,” said Daniel Silver, an economist at JP Morgan in New York. “Despite the decrease in the median sales price in the new home sales report, we must keep in mind that this is not a very reliable measure of home prices because it does not control for changes in sales mix.”
Homes in the $150,000 to $499,999 price range accounted for a large share of transactions last month. There were 439,000 new homes on the market at the end of October, up slightly from 433,000 homes in September.
Most of the inventory was homes under construction. At the pace of sales in October, it will take 7.8 months to clear the supply of homes on the market, up from 7.2 months in September.
The government also reported on Monday that permits for future home construction were higher than previously estimated in October, up 1.8% to a rate of 1.498 million units. Building permits were reported earlier this month to rise 1.1% to a pace of 1.487 million units.
Strong demand for new construction led to a rebound in residential investment in the third quarter after contracting for nine consecutive quarters.
Although mortgage rates remain a drag, some economists doubted that residential investment would continue to expand in the fourth quarter, raising expectations of a sharp moderation in the broader economy. Growth estimates for the fourth quarter are mostly below the 2% annual rate. The economy grew at a pace of 4.9% in the July-September quarter.
“The risk to our outlook is to the upside if construction continues to successfully attract potential homebuyers through incentives,” said Bernard Yaros, chief US economist at Oxford Economics.
Reporting by Lucia Mutikani; Edited by Paul Simao and Andrea Ricci
Our Standards: The Thomson Reuters Trust Principles.
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(tags for translation)EF:MARKETS-MACROMATTERS