US New Home Sales Crash to Lowest Level in Nearly 2 Years

A home advertised for sale in a residential neighborhood in San Jose, Calif., on Aug. 15, 2024. Loren Elliott/Getty Images

New home sales fell last month amid rising mortgage rates and adverse climatic conditions, according to data from the U.S. Census Bureau.

In October, 610,000 new single-family homes were sold—17.3 percent fewer than in the previous month—said a Nov. 26 statement from the agency. This is also down 9.4 percent compared to a year back and is the lowest level since November 2022.

Real estate marketplace Zillow attributed last month’s decline to an “unexpected uptick in mortgage rates from the September lows and also largely due to disruptions from hurricanes [Helene and Milton],” according to a Nov. 26 report.

Hurricane Helene made landfall on Florida’s Gulf Coast on Sept. 26 and brought widespread wind damage and flooding in parts of the Gulf Coast, western Florida, and North Carolina. Hurricane Milton made landfall at Siesta Key in Florida on Oct. 9, resulting in flooding and torrential rainfall in the state.

The South registered the largest monthly and annual decline in new home sales in October, falling by 27.7 percent and 19.7 percent respectively, census data show.

Meanwhile, the average weekly interest rate on a 30-year fixed-rate mortgage rose from 6.08 percent in late September to 6.72 percent by the end of October.

“Mortgage rates have a massive impact on buyers’ purchasing power, and big swings in rates are impacting affordability and sales,” Zillow said.

However, “the slowdown in new home sales could be short-lived, as incomes continue to rise faster than prices—improving that portion of the affordability equation—and mortgage rates remain below year-ago levels,” it noted. “With more new construction and more options for potential home buyers, a rebound in new home sales is likely—especially in the south.”

A recent Redfin report pointed out that early-stage home buying demand was at a 15-month high despite elevated mortgage rates. However, there is uncertainty about whether this was new demand or fulfillment of pending orders.

Chen Zhao, economic research lead at the company, attributes the rise in demand to buyers waiting for the U.S. presidential election to conclude. With election uncertainty now past, they are jumping into the market.

“We’re keeping a close eye on whether this is a short post-election boom, or if it translates into a steady improvement in pending sales,” he said.

Builder Sentiment, Interest Rates

Despite high interest rates, builder sentiment improved for the third consecutive month in November, according to a Nov. 18 statement from the National Association of Home Builders (NAHB).

NAHB Chairman Carl Harris pointed out that builders now have “increasing confidence” that having Republicans in power will lead to “significant regulatory relief” for the construction sector, which could translate to a boost in new homes. Sales expectations among builders for the next six months have seen a “huge jump,” he said.

However, “while builder confidence is improving, the industry still faces many headwinds such as an ongoing shortage of labor and buildable lots along with elevated building material prices,” NAHB Chief Economist Robert Dietz said.

“Moreover, while the stock market cheered the election result, the bond market has concerns, as indicated by a rise for long-term interest rates. There is also policy uncertainty in front of the business sector and housing market as the executive branch changes hands.”

Redfin points out that the U.S. Federal Reserve may cut rates faster if economic data come in weak, which could push mortgage rates lower.

However, in the case of higher inflation, the Fed would choose to keep interest rates higher, thus keeping mortgage rates elevated as well. The next Fed meeting is set for Dec. 12 to 13.

A majority of interest rate traders are expecting the agency to implement a 25-point cut in the upcoming meeting, according to data from the CME FedWatch tool.

Recently released minutes from the November meeting show that the Fed plans to cut down interest rates gradually.