October’s New-Home Sales Hit a Two-Year Low But Why?
The new-home sales market experienced a sharp slowdown in October, following a year of strong performance. According to data released by the U.S. Census Bureau and the Department of Housing and Urban Development (HUD), the seasonally adjusted annual rate of new-home sales dropped to 610,000 units. This marked a 17.3% decline compared to September and a 9.4% decrease from the same month last year.
This represents the slowest pace of new-home sales since November 2022, when the rate was 596,000, and a significant retreat from the post-pandemic low of 519,000 in July 2022. That said, Hurricane Helene certainly contributed to the decline in the South, suggesting the downturn may be temporary—or, at least, less severe than it appears at first.
Key Market Trends: Pricing and Inventory
The median price of a new home rose to $437,300 in October, reflecting a 4.7% year-over-year increase. Meanwhile, the supply of new homes swelled to 9.5 months at the current sales pace, compared to 7.9 months in October 2023.
Rising inventory levels, especially in the existing-home market, are providing buyers with more options, thereby dampening demand for new homes. In October, the existing-home inventory increased by 19.1%, offering a strong alternative for many buyers.
What’s Driving the Decline?
Economists attribute the drop in sales to multiple factors, including:
- Regional Disparities: The Southern market, which had been a consistent growth driver, saw a dramatic reversal. Sales in the South fell to a seasonally adjusted annual rate of 339,000 — a 27.7% month-over-month drop and a 19.7% annual decline. This marks the slowest sales pace in the region since the onset of the pandemic in April 2020. The next section will go into more depth regarding these disparities.
- Political and Economic Uncertainty: Some experts, like Bright MLS Chief Economist Lisa Sturtevant, cite political uncertainty as a contributing factor, though optimism appears to be returning, as evidenced by rising builder confidence measures.
Regional Breakdown: Diverging Trends
South: A dramatic decline as higher property taxes, insurance costs, and rising existing-home inventory impacted sales. As mentioned previously, Hurricane Helene significantly disrupted the Southeastern U.S. housing market, with damages estimated at $3–5 billion and widespread property withdrawals delaying transactions. The MortgagePoint
Northeast: A bright spot, with sales surging by 53.3% month over month and 35.3% year over year, rebounding after months of lackluster performance.
Midwest: Modest gains of 1.4% monthly and 15.9% annually.
West: Sales fell by 9% from September and 1.3% year over year.
Builders vs. Existing-Home Sellers
Despite the challenging environment, new home sales still make up a larger share of market transactions than they did from 2010-2020. Many builders are offering mortgage rate buydowns and independent financing options, making new homes more attractive than existing homes: This is one key advantage they have over other sellers in this housing market.
Outlook for the New-Home Market
While the October data highlights the volatility in the new-home market, experts urge caution in interpreting the results as a long-term trend. Higher mortgage rates remain a significant hurdle for both buyers and builders. However, if rates stabilize near 6%, the market could see increased activity.
For now, builders continue to face supply-side challenges though the construction backlog is providing a temporary cushion. However, with housing starts already at recessionary levels, sustained high rates could eventually lead to broader economic consequences, including potential job losses in the construction sector.
In the coming months, the interplay of mortgage rates, regional housing trends, and economic policy will determine whether the new-home market stabilizes or faces further declines. That said, there is good reason to believe the most recent numbers make things look bleaker than they actually are.
Franklin Carroll
Franklin Carroll is Kukun's VP of Modelling and Analytics; After finishing his studies at the University of Chicago, he worked at Fannie Mae where he helped build Collateral Underwriter, roll out the Value Verify initiative, and specialized in collateral related and credit related policy.
Published December 3, 2024
