New Home Sales Decline in October
New home sales experienced a 5.6% drop in October, falling from September’s revised 719,000 to an annual rate of 679,000 sales. Despite the month-over-month decline, October’s rate was 17.7% higher than the previous year. Mortgage rates increased throughout October, reaching the highest level in over 20 years by the end of the month. This resulted in worsening affordability conditions, causing buyers to pull back in certain parts of the country.
Regional Sales Variations
New home sales decreased month-over-month in the Midwest (-16.4%) and the West (-23.3%), while they increased in the Northeast (+13.2%) and South (+2.1%). However, all four regions saw a higher rate of new home sales in October compared to the previous year, with year-over-year increases ranging from 8.5% to 19.2%.
New Homes: A More Common Option for Homebuyers
Active inventory fell by 2.0% in October compared to the previous year, making new construction activity crucial to providing much-needed home supply. New homes for sale increased slightly (1.4%) month-over-month in October but remained 5.8% below year-ago levels. New homes as a share of total inventory remained steady at 28.1% in October, meaning that approximately 1 in every 3 available homes is newly built, nearly double the pre-pandemic share.
Move-in Ready Homes Remain Limited
Only 17.6% of new homes for sale are completed, while 58.6% are under construction, and 23.8% have not yet started. This indicates that although the new home share of inventory is elevated, buyers are still encountering limited move-in-ready housing stock. The months’ supply increased to 7.8 months in October from 7.2 in September, signifying a shift towards more buyer-friendly conditions.
Builders Address Affordability Concerns and Benefit from Limited Existing Homes
The median sales price of a new home dropped to $409,300, which is 3.1% lower than the previous month and 17.6% lower than in October 2022. The share of homes sold for less than $400,000 increased from 33% in October 2022 to 48% in October 2023 as shifting buyer demand and rising mortgage rates put downward pressure on prices.
Existing home sales reached their lowest level since 2010 in October, offering opportunities for new construction to absorb unmet buyer demand. Although the homebuilding industry has the capacity to continue building to offset the long-term housing market shortage, high prices and elevated mortgage rates have led builders to remain cautious. They are wary of oversupplying the market in the short-term while affordability conditions are poor.
In summary, new home sales declined in October due to increasing mortgage rates and worsening affordability conditions. However, new construction activity remains vital to addressing the housing supply gap, and builders are focusing on affordability concerns to cater to the changing buyer demand. As a result, the real estate market continues to evolve, and it is essential for both buyers and sellers to stay informed and adapt to these changes.
Orginal article: Link To Article – provided by Kansas City Realtors