Economy: Housing market in October

On Tuesday, the U.S. Commerce Department released information about the housing market. According to the information, the sales of new U.S. homes unexpectedly fell in October after recent strong results. However, the overall situation is not as bad as the housing market is supported by lower mortgage rates.

New home sales fell by 0.7% to a seasonally adjusted annual rate of 733,000 homes in October 2019. The major reason why new home sales declined is the bad results in the South as well as the Northeast regions.

In September, this number was higher as new home sales reached 738,000 units, which is the best result since July 2017. It is important to mention that the Commerce Department updated the data as it was previously reported that 701,000 new homes were sold in September.

Economists predicted that sales would increase by 1.1% to 709,000 units in October. However, the official data surpassed market expectations. New home sales account for about 11.3% of housing market sales. In comparison with the same period in 2018, sales increased by 31.6%.

The average new house price declined by 3.5% to $316,700 in October compared with October 2018. Based on the data, most of the sales were concentrated in the $200,000-$400,000 price range.

The housing market and various factors

The housing market represents only a smart part of gross domestic product. Despite this fact, it has a big influence on the economy. The recent improvement in housing activity is a positive sign for the economy.

U.S. economy is slowing down, and this is a serious challenge for the country. Also, due to slow economic expansion, consumer spending is decreasing. There are other problems such as weakness in manufacturing and investments.

There is another issue that will influence the housing market, and this issue is mortgage rates. As mentioned-above low rates supporting the housing market.

However, mortgages rates in the last two months. The fears regarding the state of affairs in the U.S. economy and the risk of recession influenced the mortgage rates.

In October, the Federal Reserve reduced the interest rates for the third time in 2019. Also, Federal Reserve hinted at a pause in the easing cycle. It means that it is unlikely that the Fed will cut the rates in the nearest future.

At the moment, the 30-year fixed mortgage rate was 3.66%, still below of 4.94% in November 2018.

It is worth mentioning that residential investment rose in the third quarter. It is important as residential investment was falling for six straight quarters. It was the worst result since a great recession.

New home sales in the Southern part of the U.S. declined by 3.3% in October. South accounts for the vast majority of transactions.  Also, sales in the Northeast fell by 18.2%.

Hopefully, there is good news, as well. New home sales increased by 4.2% in another region. Moreover, in the Midwest sales rose by 7.1%.

Let’s have a look at the number of available new homes in October. Last month, a customer could choose from 322,000 new homes, which is 0.3% more than in September.