So far this year, sales are just 2.8% higher than a year ago
The numbers: New-home sales ran at a seasonally adjusted annual 544,000 rate in October, the Commerce Department said Wednesday.
What happened: October’s selling pace for new single-family homes was 8.9% lower than September’s, although that report was revised upward. It badly missed the MarketWatch consensus forecast of a 589,000 pace, and was 12% lower than year-ago levels.
The median sales price in October was $309,700, 3.1% lower than a year earlier. At the current pace of sales, it would take 7.4 months to exhaust available supply. That’s not only above the 6 months that’s long been considered a marker of a balanced market, but also the highest level of supply in seven and a half years.
Big picture: The government’s data on new residential construction is based on small samples, and can be erratic and prone to sizable revisions. Still, it’s clear that the housing market has hit a rough patch. Sales of existing homes rose in October for the first time in six months, the National Association of Realtors said. National annual price growth decelerated for the sixth-straight month in September, according to the S&P/Case-Shiller 20-city index.
In the year to date, new-home sales are just 2.8% higher than in the same period last year.
The question now is whether the housing cycle comes to an end, or stages a rebound. Some regional markets that have overheated over the past few years, like San Francisco, have bounced back after a cooling-off period. And there was a national rebound some time after the Federal Reserve quashed a nascent recovery in 2013 by reminding investors that interest rates would have to go up at some point.
What they’re saying: “It’s clear we are well into a correction period for the new home market,” said TIAA Bank’s John Pataky. “High prices and rising rates are continuing to take their toll on this segment, which is particularly sensitive to changes in these metrics. Additionally, declining homebuilder confidence is only exacerbating the troubles for the new home market on the supply side. Next year, we will likely see a tussle between price moderation creating additional demand and rising rates having the opposite effect.”
“If the economy manages to right itself with real wage growth expanding and housing affordability holding relatively steady (prices and mortgage rates), there is a sufficient backlog of demand to reboot housing for this cycle,” Steve Blitz, chief U.S. economist for TS Lombard, after the release of October housing starts data earlier in the month.
“Pay your money and take your chances, this is the bet to be made if your view on housing leans towards ‘soft patch’. Our outlook is that because the buildup in housing was never big enough for a ‘collapse’, the coming downswing in residential construction, and the housing sector more broadly, will drag down GDP growth but not enough to flip total growth negative.”
Market reaction: Home builder stocks slid after the report. Shares of PulteGroup Inc. PHM, +1.13% were down more than 2% in midmorning trading, and KB Home shares KBH, +0.28% lost more than 3%. The Dow Jones Industrial Average DJIA, +1.13% was little changed, however.
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