(Adds details, GDP estimates, analyst comments throughout)
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New home sales drop 5.6% to a rate of 679,000 units
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Median house price plunges 17.6% to $409,300 from year ago
By Lucia Mutikani
WASHINGTON, Nov 27 (Reuters) – Sales of new U.S.
single-family homes fell more than expected in October as higher
mortgage rates squeezed out buyers even as builders cut prices,
but the setback is likely temporary amid a persistent shortage
of previously owned 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 the rate on the popular 30-year
fixed-mortgage approached 8%, leaving builders anticipating
slower 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 market for new homes remains very solid by any
historical standard and continues to be boosted by extremely low
existing home inventory,” said Daniel Vielhaber, an economist at
Nationwide in Ohio.
New home sales dropped 5.6% to a seasonally adjusted annual
rate of 679,000 units last month, the Commerce Department’s
Census Bureau said. September’s sales pace was revised lower 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% of U.S. home sales, would fall to a rate
of 723,000 units. The share is the largest in at least a decade.
New home sales are counted at the signing of a contract,
making them a leading indicator of the housing market. They,
however, can be volatile on a month-to-month basis. Sales
increased 17.7% on a year-on-year basis in October.
Monthly sales rose in the Northeast and densely populated
South. But they tumbled in the Midwest, the most affordable
region, and in the West, where housing is expensive.
The supply of previously owned houses on the market is
nearly 50% below its pre-pandemic level, according to the
National Association of Realtors, which last week reported that
home resales plunged to more than a 13-year low in October.
Most homeowners have mortgage rates under 3%, making many
reluctant to sell, boosting demand for new construction.
Stocks on Wall Street were mixed. The dollar was steady
against a basket of currencies. U.S. Treasury prices rose.
SALES REBOUND EYED
The rate on the 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 finance agency
Freddie Mac. Mortgage rates soared 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 decline
in the 10-year Treasury yield amid optimism that the U.S.
central bank was likely done hiking interest rates and could
start easing monetary policy by mid-2024.
“We would look for a rebound in new home sales, which are a
more timely indicator of housing demand, in November or December
as mortgage rates fall again,” said Veronica Clark, an economist
at Citigroup in New York.
The median new house price in October was $409,300, a 17.6%
drop from a year ago. That was the largest percentage decline
since the government started tracking records in 1964 and
probably reflected incentives, including price cuts, being
offered by builders to attract buyers.
The National Association of Homebuilders said this month
that more than a third of builders reported cutting home prices
in November. Price cutting has been the norm this year.
Economists cautioned against reading too much in the price
drop, noting that other measures like the Federal Housing
Finance Agency’s house price index showed strong price growth.
“High prices are also weighing on homebuying activity,” said
Daniel Silver, an economist at JPMorgan in New York. “Although
the median sale price in the new home sales report fell, we
should keep in mind that this is not a very reliable house price
gauge because it does not control for changes in the mix of
sales.”
Houses in the $150,000 to $499,999 price range accounted for
a large share of the transactions last month. There were 439,000
new homes on the market at the end of October, slightly up from
433,000 in September.
Most of the inventory was houses 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.
The government also reported on Monday that permits for
future home construction were higher than previously estimated
in October, increasing 1.8% to a rate of 1.498 million units.
Building permits were earlier this month reported to have risen
1.1% to a pace of 1.487 million units.
Strong demand for new construction resulted in residential
investment rebounding in the third quarter after contracting for
nine straight quarters.
With mortgage rates still a constraint, some economists
doubted residential investment would continue to expand in the
fourth quarter, adding to expectations for a sharp moderation in
the broader economy. Growth estimates for the fourth quarter are
mostly below a 2% annualized rate. The economy grew at a 4.9%
pace 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 Yaros, lead U.S. economist at Oxford
Economics.
(Reporting by Lucia Mutikani; Editing by Paul Simao and Andrea
Ricci)