This morning’s New Home Sales report from the Census Bureau disappointed forecasts by falling sharply in October, suggesting trouble in the real estate market. October’s figure plummeted by a shocking 17.3%, its lowest level since November 2022. To put this figure in perspective, sales have rarely been lower in the last five years – only during the height of the pandemic and in late 2022.
Other key measures also indicate further weakness. The median sales price for a new home rose to $437K, its highest in 14 months, which has the potential to price out even more buyers. In addition, new home inventory has spiked, rising to a level not seen since the Great Financial Crisis and signaling growing oversupply amid weakening demand.
Given the dynamic of rising inventory and falling sales, Months’ Supply of New Homes for Sale at the current sales rate has surged to 9.5 months– its highest since October 2022. Historically, elevated months’ supply has coincided with economic recessions, and today’s figure is consistent with some of the worst housing downturns of the past 50 years (see red dashed line on graph below).
Today’s report highlights growing cracks in the housing market foundation. The Federal Reserve’s recent pivot to more accommodative monetary policy has not translated to relief for buyers as anticipated. In fact, the 30-year mortgage rate has climbed back to 6.8% per Freddie Mac, since the Federal Reserve began their easing campaign in September.
New construction has been the bright spot in the overall stagnant housing market. Homebuilders have attracted buyers by offering incentives as existing home inventory remains constrained. However, it seems that the new home market is now seeing meaningful weakness. If these trends persist, this critical building block for the economy could be in trouble.