New home sales in the United States dropped more than expected in October due to high mortgage rates and persistent shortage in the housing market, according to a report.
New houses sold at an annual rate of 679,000 in October, far lower than the 725,000 new homes analysts expected to be sold. October's sale pace was also lower than September's 719,000, which was revised lower by about 40,000 units, according to data from the "Monthly New Residential Sales," a joint report from the U.S. Department of Housing and Urban Development and the Census Bureau.
Home sales fell 16.4% in the Midwest and 23.3% in the West. That being said, data showed that the home sales for October 2023 are still above the 577,000 sales reported in the same month last year. New home sales increased 2.1% in the South and 13.2% in the Northeast.
Houses priced from $150,000 to $499,999 accounted for a large share of all closed transactions in October. Many of the inventory sold in October were houses under construction.
Why Are Home Sales Falling?
There are various factors contributing to the falling sales of new homes. First, there is a persistent shortage of previously owned properties in the housing market, which is nearly 50% below pre-pandemic levels, per the New York Post, citing the National Association of Realtors. Many homeowners also have mortgage rates under 3%, making many reluctant to sell their property.
In addition, mortgage rates are just coming off 22-year highs of over 8%. The 30-year mortgage rate average fell to 7.66%. The 15-year rate average rose a minimal basis point higher last week to 7.00% from 6.94%, which was its lowest reading since August.
Mortgage rates soared after the Federal Reserve hiked interest rates to combat inflation. The Feds are targeting an inflation rate of 2% or lower.
"Fed hikes are not having the desired effect because households have locked in low levels of mortgage rates during the pandemic," Torsten Slok, chief economist at Apollo Global Management in New York, told the New York Post.
Mortgage rates are expected to drop in 2024, which could help increase home sales by 4.5%, according to Investopedia, citing the National Association of Home Builders.
Despite falling home sales, the government reported an increase in requests for permits for future home construction last month, increasing 1.8% to 1.498 million units.
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