Home Sales Unexpectedly Jump In October: Do Buyers Not Care About High Interest Rates?

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Zinger Key Points
  • The Commerce Department said on Wednesday that new home sales increased 7.5% last month.
  • In the Northeast, sales increased 45.7%, and in the South, sales increased 16%.
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Although rising mortgage rates and home prices have severely reduced affordability this year, sales of new single-family homes in the U.S. unexpectedly increased in October.

The Commerce Department said on Wednesday that new home sales increased 7.5% last month to 632,000 units on a seasonally adjusted annual rate.

The previously stated 603,000 units for September's sales rate were revised down to 588,000 units.

"[The] jump in sales is impossible to square with the collapse in mortgage demand; current prices can’t be sustained,” said Pantheon Macro senior U.S. economist Kieran Clancy.

In the Northeast, sales increased 45.7%, and in the South, sales increased 16%. They plummeted 0.8% in the West and 34.2% in the Midwest.

Read also: Guess Which Major US City Most Residents Want To Leave ASAP?

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New house sales, which make up roughly 10% of all home sales in the United States, were expected to fall to a rate of 570,000 units in October, according to economists surveyed by Reuters.

Sales of new homes fluctuate from month to month. In October, sales decreased 5.8% from the same month last year.

Despite the unexpected jump in home sales, construction on new homes decreased 4.2% in October, with consumers being turned off by high mortgage rates and builders being compelled to cut back. This trend is expected to continue through 2023 as permits, the indicator of future construction, fell 2.4% to about 1.53 million.

That is most notable for the builders involved seeking to expand construction or even complete backlogged homes, like KB Home KBH or Lennar Corp LEN.

Toll Brothers Inc TOL, which is exposed to the higher end of the market, is of particular note, as its shares lag its peers, down 33% over the last year alone.

Aggressive Federal Reserve interest rate increases that are intended to lower high inflation by reducing demand in the economy have severely harmed the housing market this year, with some economists calling for a 20% reduction in home prices next year.

Read Now: The Fed Is Crushing The Housing Market, Not Inflation

According to data from Freddie Mac, the 30-year fixed mortgage rate crossed the 7% threshold in October for the first time since 2002. The most recent week saw an average rate of 6.61%.

To read about the latest developments in the industry, check out Benzinga's real estate home page.

Photo via Shutterstock.

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Posted In: Top StoriesReal EstateArrived HomesHousingInterest Rates
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