New Home Sales Dropped Last Month As Mortgage Rates Reach 2023 High
October 2023 Records 5.6% Dip in New Home Sales Amidst Rising Mortgage Rates.
In a surprising turn of events for the housing market, new home sales experienced a notable 5.6% decline in October 2023, falling below market expectations. The adverse impact of elevated mortgage rates significantly diminished consumer demand, as reported by the Census Bureau and the Department of Housing and Urban Development.
The median home price also experienced a downturn, dropping to $409,300 from the previous month’s $418,800. Analysts had anticipated a more resilient market, predicting sales to reach around 723,000, but the actual figure stood at 679,000 for October, marking a substantial drop from the revised September figure of 719,000. Despite the month-on-month setback, new home sales for October remained 17.7% higher than the previous year’s period.
Builders, in response to the challenging market conditions, have resorted to price reductions and attractive incentives like free upgrades and mortgage rate reductions to stimulate buyer interest. The recent surge in mortgage rates, reaching approximately 8% for a 30-year fixed-rate loan in October, has been a noteworthy factor influencing the housing market dynamics. However, there is a silver lining as current rates have since eased, dropping by about one percentage point from the October peak.
The housing market’s performance in October underscores the delicate balance between market forces and consumer confidence, with analysts closely monitoring these fluctuations. The decline in new home sales and the associated pricing adjustments demonstrate the industry’s adaptability in the face of evolving economic conditions while buyers and sellers navigate a dynamic real estate landscape.
“New home sales decreased in October,” according to 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 are a variable option for homebuyers because homeowners who have a low mortgage rate are not willing to put the existing properties on the market. Because they have to face a much higher amount in monthly payments when it comes to buying another house. It has limited inventory and it resulted in an increase in new home sales.
“Even though new home sales have been solid, builders are increasingly having to react to weaker demand amidst growing unaffordability,”
according to 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 further 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.”
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