Sales slumped and prices fell in October, but activity was still higher than a year ago.
New home sales fell 5.6% in October, worse than expected, as higher mortgage rates took a bite out of demand.
The report from the Census Bureau and the Department of Housing and Urban Development also showed prices fell to a median of $409,300 from the prior month’s $418,800 level.
The annual level of sales in October was 679,000, down from September’s substantially revised 719,000 pace, However, sales in October were still up 17.7% from a year ago. Analysts had predicted sales would come in around 723,000.
Builders have been cutting prices as well as offering incentives such as free upgrades and buying down mortgages. October saw a sharp increase in mortgage rates to around 8% for a 30-year fixed rate loan. Today’s rates have fallen about a percentage point from those levels.
“New home sales decreased in October,” said Kelly Mangold and Greg Logan of RCLCO Real Estate Consulting. “Interest rates peaked this month before declining in November, and the high rates exacerbated existing affordability concerns.”
New homes have been a viable option for homebuyers as homeowners with low-rate mortgages have been unwilling to put their existing homes on the market as they would face much higher monthly payments to buy another house. That has limited inventory and led to an increase in new homes for sale. However, the higher mortgage rates have slowed sales of new homes as well.
“Even though new home sales have been solid, builders are increasingly having to react to weaker demand amidst growing unaffordability,” said Bright MLS Chief Economist Lisa Sturtevant. “While the median price of existing homes continues to increase, in October, the median new home price was down 17.6% year-over-year, the seventh consecutive month of price declines, and the biggest yearly price drop on record.”
“New home prices peaked back in October 2022, with the median sale price at just under $500,000,” Sturtevant added. “New homes are still more expensive than existing homes, but the gap has narrowed in recent months with the typical new home now just 5% more expensive than the typical existing home.”
Housing had been one of the more robust sectors of the economy coming out of the pandemic as people relocated to Southern and Western states amid the boom in remote work. More recently, markets in the Northeast and Midwest have flourished as they have become relatively more affordable. The recent drop in mortgage rates, with more expected next year, could prove to be a tonic to the market.
However, many would-be homeowners are also concerned about rising insurance costs or even its availability in locations susceptible to storms and wildfires.
“Americans are now spending nearly 41% of their income on monthly housing payments, making today’s market the least affordable it has been since 1984,” said Travis Hodges, managing director at VIU by HUB, a large insurance broker. “As potential homeowners are already burdened by these costs, home insurance creates an additional hurdle.”