New home sales fell last month as mortgage rates hit 2023 high
By Anna Bahney, CNN
Washington, DC (CNN) — New home sales in the United States fell in October as typical mortgage rates reached their highest levels this year.
Sales of newly constructed homes fell 5.6% in October to a seasonally adjusted annual rate of 679,000, from a revised rate of 719,000 in September, according to a joint report from the US Department of Housing and Urban Development and the Census Bureau. Sales were up 17.7% from a year ago.
This was below analysts’ expectations of an annualized sales pace of 723,000.
While sales of existing homes have been trending down since February and are on pace to be the worst in 30 years, new construction homes have been a welcome alternative for buyers.
An ongoing inventory and affordability crunch has meant homeowners with ultra-low mortgage rates of 3% or 4% are reluctant to sell and buy another home at a much higher rate. In August, rates topped 7% and rose as high as 7.79% at the end of October as the Federal Reserve continues to address inflation, according to average weekly rates for a 30-year fixed rate loan from Freddie Mac.
The average mortgage rate for that loan has been lower recently, dropping down to 7.29% last week, according to Freddie Mac.
“The constrained resale home market has continued to benefit the new home market because new homes are often the only option readily available as many owners continue to remain in place with their favorable interest rates,” said Kelly Mangold of RCLCO Real Estate Consulting.
New home builders often offer more financing options for homebuyers, she said, and are able to “buy down” mortgage rates to make their offerings more attractive than the resale market.
To “buy down” the mortgage rate, the homebuilder can subsidize a portion of the interest rate for a specified period, usually one or two years, making it more affordable for homebuyers in the near term. In the event that rates are lower a couple years from now the homeowner can refinance into a loan with lower monthly payments for the life of the loan.
With [mortgage] interest rates anticipated to drop in the coming year, more resale homes may go on the market – however there remains significant pent-up demand from buyers,” Mangold said.
“We have under built homes compared to household growth for more than the past decade and this mismatch has allowed pricing in many metro areas to continue to rise as households compete for the limited number of available homes.”
If 2024 brings lower interest rates there is the possibility that new home sales pace will begin to pick up as conditions improve, she said.
The-CNN-Wire
™ & © 2023 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.
