Sales of new U.S. single-family homes experienced a decline of 5.6% in October, according to the Commerce Department. This drop was attributed to higher mortgage rates and a shortage of previously owned houses on the market. The decrease in home sales aligns with a recent deterioration in homebuilder sentiment, as the 30-year fixed-mortgage rate approached 8%.
However, there is hope for a rebound in sales as mortgage rates have since retreated from their two-decade highs and are currently at levels last seen in late September. This could potentially pave the way for an improvement in the housing market. Additionally, the supply of previously owned houses on the market is nearly 50% below its pre-pandemic level, which further boosts the demand for new construction.
Despite the decline in sales for October, there was a year-on-year increase of 17.7% in new home sales, indicating resilience in the market. The median new house price in October was $409,300, reflecting a 17.6% drop from a year ago. This decline is likely a result of incentives and price cuts offered by builders.
However, economists caution against reading too much into the price drop, as other measures show strong price growth. They believe that the drop in median price may not accurately reflect the overall trend in the housing market.
Interestingly, permits for future home construction were higher than previously estimated in October, indicating strong demand for new construction. This is a positive sign for the housing market, despite concerns over mortgage rate constraints.
Residential investment rebounded in the third quarter after nine consecutive quarters of contraction. However, economists doubt that this expansion will continue into the fourth quarter due to the constraints posed by mortgage rates. Growth estimates for the fourth quarter are mostly below a 2% annualized rate, with the economy growing at a pace of 4.9% in the July-September quarter.
Overall, the housing market in the United States is facing challenges due to higher mortgage rates and a shortage of available houses on the market. However, there are signs of resilience and potential for improvement, with the retreat of mortgage rates and strong demand for new construction. Economists remain cautious about the outlook for the fourth quarter but acknowledge the positive momentum in the market.