In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses new home sales.
- Contracts for new home sales surged 25.4% from September to October to a seasonally adjusted annualized rate of 444,000. This sharp gain followed two months of significant downward revisions. However, this positive jump is likely transitory and reflects a temporary drop in mortgage rates.
- Sales of new homes have been constrained by low inventories for several quarters, but inventories are on the rise and were at roughly their highest level in October, 183,000, since the spring of 2011. The months supply of new homes pushed up in August and September on slower sales and rising inventories, but that trend reversed in October with the jump in sales. As a result, the months supply eased from 6.4 in September to 4.9 in October.
- Low inventory levels had pushed the median sale price for new homes up in recent months, but the two-month slowdown weighed on months supply and the median price, which eased 0.6% to $245,800 in October compared to the same month in 2012. The median existing home price was 23.2% lower at $ 199,500, nearly double the historical average spread of 12.3%, suggesting that existing homes are a bargain by historical standards.
- While the October improvement in contracts for new home sales is positive for employment and the economy, it reflects a strong boost in demand driven by the sharp drop in mortgage rates in late September and early October following the Federal Reserve’s announcement that it would not taper purchases of Treasuries and MBS. While the government shutdown in early/mid October may have disrupted some sales, the shutdown was short lived and buyers were incented to move quickly to capture low rates. Rates have subsequently inched up 30-40 basis points, nearly the same level as before the Fed’s announcement. As a result, the October results are likely transitory and contracts for new home sales are likely to ease in November and December.