Teport: New Home Sales an Emerging Trend?
In a turn of events that echoed the recent downturn in homebuilder sentiment, new US single-family home sales experienced a steeper-than-anticipated drop of 5.6% in October, according to data released by the Commerce Department on Monday. This decline, attributed to the impact of elevated mortgage rates dissuading potential buyers, occurred even as home prices saw a substantial 17.6% year-over-year plunge. Despite this setback, experts suggest that the downturn is likely temporary, given the persistent shortage of previously owned homes available in the market.
The Commerce Department’s Census Bureau reported that October’s seasonally adjusted annual rate of new home sales stood at 679,000 units, with September’s figures revised downward to 719,000 units from the initially reported 759,000 units. Economists, polled by Reuters, had predicted a fall to a rate of 723,000 units, emphasizing the volatile nature of monthly sales figures. However, on a year-on-year basis, new home sales demonstrated resilience, marking a 17.7% increase in October.
Daniel Vielhaber, an economist at Nationwide in Ohio, highlighted the overall solidity of the new homes market, underscoring the positive impact of an extremely low inventory of existing homes. Home sales varied regionally, with the Northeast and densely populated South experiencing a monthly rise, while the Midwest and the pricey West witnessed a decline.
The backdrop for this market turbulence is the ongoing shortage of previously owned houses, nearly 50% below pre-pandemic levels, according to the National Association of Realtors. Home resales, as reported last week, hit a more than 13-year low in October.
A key factor influencing the market dynamics has been the fluctuation in mortgage rates. In late October, the 30-year fixed-rate mortgage reached an average of 7.79%, the highest level since November 2000. The Federal Reserve’s aggressive interest rate hikes to combat inflation were cited as the driving force behind this surge. However, recent weeks have seen a decline in mortgage rates, with the 30-year fixed rate averaging 7.29% last week.
Torsten Slok, Chief Economist at Apollo Global Management in New York, commented on the impact of Federal Reserve rate hikes, stating that households had locked in low mortgage rates during the pandemic, reducing the effectiveness of these policy moves.
Despite the drop in new home prices, with a median of $409,300 in October reflecting a 17.6% year-over-year decrease, economists caution against overinterpreting this figure. They point to alternative indicators, such as the Federal Housing Finance Agency’s house price index, which shows robust price growth. Economists also noted that the median sale price in new home sales reports may not be a reliable house price gauge due to its failure to account for changes in the sales mix.
Houses in the $150,000 to $499,999 price range dominated transactions last month, with 439,000 new homes on the market at the end of October, a slight increase from 433,000 in September. The majority of the inventory comprised homes under construction. At October’s sales pace, it would take 7.8 months to clear the supply of houses on the market, up from 7.2 months in September.
In a parallel development, the government reported on Monday that permits for future home construction in October were higher than previously estimated, increasing by 1.8% to a rate of 1.498 million units. Strong demand for new construction has resulted in residential investment rebounding in the third quarter after contracting for nine consecutive quarters, contributing to the economy’s overall growth at a 4.9% annualized rate in the July-September quarter.
TePORT: New Home Sales an Emerging Trend?
Source: Reuters
