Economist's Insights

New Home Sales Slump to Slowest Sales Pace Since March 2016

Nov 28, 2018

New home sales sank unexpectedly in October as struggles for housing activity continued to show few signs of abating. While the 8.9% monthly drop exaggerated the relative severity a bit, considering a large positive revision to September’s sales from -5.5% to +1.0%, the annualized pace of 544k units was the weakest since March 2016.

No regions were spared, as all four posted notable declines. The sharpest drops occurred in the Northeast (-18.5%) and Midwest (-22.1%), which combined only account for 15% of total sales. However, sales in the South, the largest-volume region, declined 7.7% to their lowest since July 2017 and the West saw 3.2% fewer contracts signed, the least since August 2017. Higher mortgage rates have further crimped affordability that has suffered as price gains have consistently run faster than wage growth. But slower sales have helped pushed the median price down 3.1% from a year ago to $309.7k, the lowest since February 2017. Too little supply was a long-time culprit for rapid price gains, but a shortage no longer seems to be the issue. The number of new homes for sale jumped to its highest level since January 2009. The months’ supply on hand has surged from 5.3 in March to 7.4 in October, the most since 2011. While new home sales tend to see significant revisions, shown to be true in Wednesday’s report, October’s disappointment will for now serve as another sign of continued slowing in the U.S. housing market.