New home sales slowed significantly in October 2024 to an annualized 610,000, the lowest pace since November 2022. Record high median and average new home prices were set in October 2024. Interest rates are likely to fall in 2025, which could weigh on mortgage rates and support new and existing home sales in the year ahead.
New Home Sales Slowed In October 2024
New home sales fell significantly in October 2024 to a seasonally adjusted annual rate of 610,000 in the Monthly New Residential Sales report released by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development on November 26.
Sales of new single-family houses slowed significantly, falling by 17.3 percent below the revised September rate of 738,000 and 9.4 percent below the October 2023 estimate of 673,000.
New Home Sales Rise Even As Mortgage Rates Rise
High mortgage rates and high home prices have been holding back new home sales. After falling throughout September, the average 30-year fixed mortgage rate increased during October, which likely weighed on new home sales. Additionally, mortgage rates rose further in November, which could keep new home sales under pressure.
While home prices may not fall significantly nationally in the next two years, mortgage rates are poised to decline as the Federal Reserve cuts interest rates further.
Prices Set Record Despite Depressed Home Sales
While mortgage rates were high and new home sales slowed significantly in October 2024, home prices surged to new record-high average and median prices.
New home prices increased significantly, despite a rise in the seasonally-adjusted estimate of new houses for sale at the end of October to 481,000, representing 9.5 months of supply at the current sales rate.
The median sales price of new houses sold in October 2024 was at a new record high of $437,300, up from $426,800 in September. Additionally, average sales prices rose to a new record high of $545,800 from $509,900.
Inventory Of New Homes For Sale Rises
New median and average home prices increased significantly in October, despite a rise in the seasonally-adjusted estimate of new houses for sale to 481,000, representing 9.5 months of supply at the current sales rate. This was the highest inventory ratio of months to sales in two years—since October 2022.
Looking Ahead To The Future Of New Home Sales
Fed interest rate cuts are likely in 2025 and 2026, according to the Federal Open Market Committee projections from September 2024. Prestige Economics also expects the Fed to cut interest rates significantly in 2025 and 2026.
When Fed rates fall, mortgage rates usually decline as well. However, longer-dated Treasury rates remain elevated. If longer-dated Treasury yields remain high, mortgage rates may fall more slowly than Fed rate cuts alone would imply.
On the upside for housing, the U.S. labor market is strong, keeping housing demand and prices strong. Meanwhile, construction job vacancies are high, keeping housing construction replacement costs elevated.
Even if mortgage rates remain high, real estate demand and prices seem likely to remain solid. Of course, if mortgage rates fall significantly in the months ahead, demand for new homes and prices would likely rise significantly.
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