Buyers Pull Away From New-Home Market

November 29, 2018

Sales of new homes plunged to a more than 2 1/2-year low in October, as all four major regions of the U.S. posted sharp declines, the Commerce Department reported Wednesday.

New-home market plunges

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Sales of newly built, single-family homes dropped to a seasonally adjusted annual rate of 544,000 units in October—the lowest pace since March 2016.

Higher borrowing costs are pushing homeownership out of reach among more potential buyers, which has been playing out in the sales of existing homes too. A strong job market and demographics bode well for housing demand, but “rising interest rates and home prices are forcing customers to take a pause,” says Randy Noel, chairman of the National Association of Home Builders. “Policymakers should see this drop in sales as an indicator that housing affordability will continue to slow down the market.”

Buyers still in the market are seeing more choices. The inventory of new homes for sale increased to 336,000 in October. The median sales price also curtailed in October, dropping 3.6 percent to $309,700. The drop in the sales price, however, is due to a market shifting to more townhomes and other lower-cost housing than from builders’ dropping their prices.

“This is absolutely a cooling market,” Ralph McLaughlin, deputy chief economist at CoreLogic Inc., a housing data firm, told The Wall Street Journal. “Interest rates have increased and that’s really tamped down demand.” That is slowing home price growth and that could allow would-be buyers’ wages an opportunity to play catch up. “I really see this as a market coming into balance, rather than a market that’s on the brink of a collapse,” McLaughlin says.