New home sales fell on a month-over-month basis in October, but continued to outpace last year’s levels. Meanwhile, low supply and high mortgage rates continued to dampen existing home sales.
In October, new home sales reached a seasonally adjusted annual rate of 679,000, according to data published on Monday by the U.S. Census Bureau and the Department of Housing and Urban Development (HUD). This is 5.6% below the revised September rate of 719,000 but is 17.7% above the October 2022 estimate of 577,000.
On a year-to-date basis, new home sales were up 9.5% in the Northeast, 5.8% in the South, and 2.5% in the West, while sales were down 0.3% in the Midwest.
According to Alicia Huey, chairman of the National Association of Home Builders (NAHB), sales fell in October from the prior month because of elevated mortgage rates. However, new home sales were still up year-over-year due to a lack of housing inventory in the resale market. Builders have been struggling with the increased cost of borrowing, while many buyers were priced out of an unaffordable housing market. Builder confidence fell to 40 in October.
In such a difficult housing market, many builders offered concessions to boost their sales, according to the NAHB. In its October survey, the trade group found that 32% of builders reported cutting home prices while 62% of builders provided sales incentives (most builders are buying down mortgage rates).
However, the share of new construction for sale in the third quarter was the highest ever recorded. Nationwide, 30.6% of U.S. single-family homes for sale in the third quarter were new construction, up from 28.9% one year earlier, according to a report from Redfin.
The median price for a new home kept inching down
There was a bright side for consumers. The median price for new homes fell to $409,300 in October, down 3.1% from $418,800 in September, and down 17.6% from $493,000 in October 2022. It was the seventh consecutive month of price declines, as well as the biggest yearly price drop on record. New homes remain more expensive than existing homes, but the gap has narrowed since new home prices peaked in October 2022. These days, the typical new home is just 5% more expensive than the typical existing home, according to Bright MLS Chief Economist Lisa Sturtevant.
New single-family home inventory remained healthy in October with 439,000 homes available, representing a 7.8 months’ supply at the current sales pace. It was up from September’s 435,000 available homes.
What to expect in 2024?
Heading into 2024, new home sales are likely to remain an important driver of home sales, according to Zillow Senior Economist Orphe Divounguy.
“Not only have mortgage rates already fallen from their October peak, but builders are also making the math work for prospective home buyers by offering a combination of small price cuts and other incentives – such as rate buydowns and closing cost credits,” Divounguy said in an emailed statement.