Workers install roof trusses on a home under construction in Vineyard, Utah.
George Frey | Bloomberg | Getty Images
Sales of new U.S. single-family homes unexpectedly fell in October following recent strong gains, but the overall housing market remains supported by lower mortgage rates.
The Commerce Department said on Tuesday new home sales dropped 0.7% to a seasonally adjusted annual rate of 733,000 units last month, held down by decreases in activity in the South and Northeast regions.
September’s sales pace was revised higher to 738,000 units, the highest since July 2007, from the previously reported 701,000 units.
Economists polled by Reuters had forecast new home sales, which account for about 11.3% of housing market sales, would increase 1.1% to a pace of 709,000 units in October.
New home sales are drawn from permits and tend to be volatile on a month-to-month basis.
Sales surged 31.6% from a year ago.
The median new house price fell 3.5% to $316,700 in October from a year ago. Sales last month were concentrated in the $200,000-$400,000 price range. Homes priced below $200,000, the most sought after, accounted for only 9% of sales.
The housing market, the most sensitive sector to interest rates, has perked up in recent months, catching up to the Federal Reserve’s easy monetary policy stance, which has pushed down mortgage rates from last year’s multi-year highs.
Reports last week showed housing starts surging and building permits vaulting to more than a 12-year high in October, and home resales advancing. Though housing accounts for a fraction of gross domestic product, it has a bigger economic footprint.
The recent improvement in housing activity at the start of the fourth quarter suggests some support for the economy, which is slowing amid cooling consumer spending and persistent weakness in business investment and manufacturing.
But the housing market momentum could slow as mortgage rates have backed up in the last two months, partly driven by ebbing fears of a recession amid a de-escalation in trade tensions between the United States and China.
The Fed last month cut rates for the third time this year and signaled a pause in the easing cycle that started in July when it reduced borrowing costs for the first time since 2008.
The 30-year fixed mortgage rate is currently at 3.66%, still below its peak of 4.94% in November 2018, according to data from mortgage finance agency Freddie Mac.
Residential investment rebounded in the third quarter after contracting for six straight quarters, the longest such stretch since the 2007-2009 recession.
New home sales in the South, which accounts for the bulk of transactions, fell 3.3% in October. Sales in the Northeast tumbled 18.2%. But sales increased 4.2% in the Midwest and jumped 7.1% in the Midwest.
There were 322,000 new homes on the market last month, up 0.3% from September. At October’s sales pace it would take 5.3 months to clear the supply of houses on the market, up from 5.2 months in September.
About two-thirds of the houses sold last month were either under construction or yet to be built.