U.S. New Home Sales Inch Higher in October

U.S. new home sales rose 0.4% to a seasonally-adjusted annual rate of 745,000 in October from 742,000 in the prior month, the Commerce Department said Wednesday.

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The numbers: U.S. new home sales rose 0.4% to a seasonally-adjusted annual rate of 745,000 in October from 742,000 in the prior month, the Commerce Department said Wednesday.

Because of a small sampling size, the sales data are often revised sharply. Sales in September were originally estimated at 800,000.

Analysts polled by The Wall Street Journal had forecast new-home sales in October to remain steady at an 800,000 rate.

Key details: The median sales price of new houses sold in October was $407,700 marking a new record high. The supply of new homes for sale rose by 3.3% between September and October, equating to a 6.3-month supply.

Regionally, sales were strong in the Midwest and rose slightly in the South while declining in the Northeast and West.

Big picture: In a market where housing costs continue to rise, new home sales play an important role. One of the major reasons why home prices keep increasing is that there simply aren’t enough homes around to meet buyer demand. A hesitancy on the part of existing homeowners to list their properties for sale has exacerbated the inventory crunch for well over a year now, stoking competition among buyers that has driven prices skyward.

“For homebuyers who felt frustrated by this year’s extremely limited supply of existing homes, new construction can seem like an attractive alternative,” said Danielle Hale, chief economist at Realtor.com. But as she cautions, there’s a big catch.

“Many for-sale new homes are either under construction or not-yet-started,” Hale said. “In other words, they’re not quite move-in ready, a less than ideal choice for home shoppers eager to get settled.”

Home builders have been hampered by backlogs of construction materials and a shortage of labor. Not only has that extended out the timeline on most construction projects, but it’s also pushed prices for new homes higher. With mortgage rates expected to rise in the months ahead, there are growing concerns that more and more buyers could be priced out of the market.

Market reaction: Stocks were lower on Wednesday on expectation the Fed may decide next month to “taper” its asset purchases at a faster pace. The asset purchases have been a signal to markets that short-term interest rates would remain close to zero.

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