Hurricanes Mostly Explain the Surprisingly Acute Decline
Source: Economics Group of Wells Fargo Bank, N.A.
Summary
Elevated Mortgage Rates and Policy Changes Headwinds for Home Builders
New home sales dropped 17.3% to a 610K unit pace during October. A sharp pull-back in sales in the South region suggests recent hurricanes negatively impacted home buying during the month. The bounce in November’s NAHB housing market index points to sales bouncing back in coming months as scarce resale supply and pricing incentives from builders continue to support new home demand. A material step-up in sales seems unlikely, however, given the elevated stance of mortgage rates. Although a more friendly regulatory environment could prove beneficial, changes in tariff and immigration policy stand to reintroduce supply chain uncertainty and could potentially constrain new residential construction moving forward.
October New Home Sales Distorted by Hurricanes
- New home sales slid 17.3% over the month in October to a 610K unit pace. Overall, October’s slowdown was the slowest pace experienced since November 2022.
- Much of the slowdown can be attributed to a drop in new home sales in the South, where sales fell 27.2% during the month. This acute decline indicates that the overall drop in sales was likely a result of disruptions associated with Hurricanes Helene and Milton. That said, the West also posted a pull-back and fell by 9% in October. Meanwhile, sales jumped by over 50% in the Northeast and edged up 1.4% in the Midwest.
- The bounce in November’s NAHB housing market index, which registered a broad-based improvement in buyer traffic, current and future sales, points to sales rebounding in coming months as scarce resale supply and pricing incentives from builders continue to support demand for new homes.