- New home sales fell 5.6% to 679,000 units
- The median home price fell 17.6% to $409,300 from a year ago
WASHINGTON, Nov 27 (Reuters) – Sales of new single-family homes in the U.S. fell more than expected in October as higher mortgage rates pushed out buyers even as builders cut prices, but the setback is likely to be temporary amid a persistent shortage of owner-occupied homes. formerly houses on the Market.
The decline in sales reported by the Commerce Department on Monday was in line with a recent deterioration in homebuilder sentiment, which came as interest on the popular 30-year fixed mortgage neared 8%, leaving builders to expect slower traffic on buyers. Since then, mortgage rates have retreated from two-decade highs and are at levels last seen in late September, which could pave the way for a sell-off recovery.
“The new housing market remains very robust by any historical standards and continues to be driven by extremely low available housing inventory,” said Daniel Vielhaber, Ohio economist at Nationwide.
New home sales fell 5.6 percent to a seasonally adjusted annual rate of 679,000 units last month, the Commerce Department’s Census Bureau said. The September sales pace was revised up to 719,000 units from the previously reported 759,000 units.
Economists polled by Reuters had forecast new home sales, which account for 15.2 percent of U.S. home sales, to fall to 723,000 units. The share is the largest in at least a decade.
New home sales are counted at contract signing, making them a leading indicator of the housing market. However, they can be variable on a monthly basis. Sales rose 17.7% year over year in October.
Monthly sales increased in the Northeast and the densely populated South. But they fell in the Midwest, the most affordable region, and in the West, where housing is expensive.
Existing home listings are nearly 50 percent below their pre-pandemic levels, according to the National Association of Realtors, which last week reported that home resales fell to a more than 13-year low in October.
Most homeowners have mortgage rates below 3%, making many reluctant to sell, increasing demand for new construction.
Wall Street stocks were mixed. The dollar was steady against a basket of currencies. US government bond prices rose.
RECOVERY OF SALES
The interest rate on a 30-year fixed-rate mortgage jumped to an average of 7.79 percent at the end of October, the highest level since November 2000, according to data from mortgage lender Freddie Mac. Mortgage rates jumped as the Federal Reserve aggressively raised interest rates to fight inflation.
The 30-year fixed-rate mortgage has fallen in recent weeks and averaged a still-high 7.29% last week, tracking the fall in 10-year Treasury yields amid optimism that the U.S. central bank may have finished hiking on interest rates and may start easing monetary policy by mid-2024.
“We would expect a rebound in new home sales, which are a more timely indicator of housing demand, in November or December when mortgage rates fall again,” said Veronica Clark, an economist at Citigroup in New York.
The median price of new homes in October was $409,300, down 17.6% from a year earlier. That was the biggest percentage drop since the government began keeping records in 1964 and likely reflected 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 home builders reported a decline in home prices in November. Price cuts are the norm this year.
Economists cautioned against reading too much into the price drop, noting that other measures such as the Federal Housing Finance Agency’s home price index show strong price growth.
“High prices are also weighing on home buying activity,” said Daniel Silver, an economist at JPMorgan in New York. “Although the median sales price in the new home sales report fell, we must keep in mind that this is not a very reliable measure of home prices because it does not control for changes in the mix of sales.”
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 in September.
Most of the inventory was houses under construction. At October sales rates, 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 Monday that permits for future housing construction were higher than previous estimates in October, rising 1.8 percent to 1.498 million units. Earlier this month, it was reported that building permits rose 1.1% to a pace of 1.487 million units.
Strong demand for new construction led to a recovery in residential investment in the third quarter after contracting for nine straight quarters.
With mortgage rates still a constraint, some economists doubted housing investment would continue to pick up in the fourth quarter, adding to expectations of a sharp slowdown in the broader economy. Growth forecasts for the fourth quarter are mostly below a 2% annual rate. The economy grew by 4.9% in the July-September quarter.
“The risk to our forecast is to the upside if builders continue to successfully attract potential homebuyers with incentives,” said Bernard Jaros, chief US economist at Oxford Economics.
Reporting by Lucia Muticani; Editing by Paul Simao and Andrea Ricci
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