New home sales are expected to show a pullback in October as mortgage rates rose above 7%. Yet the average rate on the popular 30-year home loan has since retreated from that level, and another batch of data this morning showed that it made a difference on home buying demand.
The Census Bureau’s new home sales data for October is expected Wednesday at 10 a.m. Consensus foresees the seasonally-adjusted annual rate of sales falling to 572,000 from 603,000 in September.
Such a decline in contract signings for a new home would represent the second month-over-month drop in a row as higher mortgage rates, which rose above 7% for the first time in two decades in October, put pressure on prospective buyers’ bottom lines.
Mortgage rates have risen throughout 2022, but gains picked up steam after the Federal Reserve signaled this summer that it would act aggressively to control inflation. Since the last week in 2021, the average mortgage rate on a 30-year fixed-rate home loan has more than doubled.
New home sales through September are down about 14% year-to-date compared with 2021, according to historic data. Should the expected slump come to pass, October’s new home sales data wouldn’t be the only housing market indicator to trend down last month. Existing-home sales, housing starts, and builder confidence all fell month-over-month in October, according to data released last week.
Rates hovering near 7% likely drove the decline in new home sales in October—but, since then, mortgage rates have given back some ground. The average rate on a 30-year fixed-rate mortgage last week was 6.61%,
said. That’s still high compared with 2021, when the average 30-year fixed rate ended the year at 3.11%, but represents a drop of 0.47 percentage point drop from the week prior—the most dramatic week-over-week fall since the early 1980s.
The decline follows a cooler-than-expected Consumer Price Index reading, which was released in the second week of November. Daily mortgage rates measured by Mortgage News Daily fell back following the reading, and remained near 6.6% through Monday.
Those low mortgage rates have helped boost demand: mortgage application volume increased for the week ended Nov. 18, up 2.2% on a seasonally adjusted basis from the prior week, according to the Mortgage Bankers Association data released Wednesday. Despite the week-over-week increase, demand remains subdued compared to last year, with purchase activity down 41% on an unadjusted basis compared with the same week in 2021.
“The decrease in mortgage rates should improve the purchasing power of prospective home buyers, who have been largely sidelined as mortgage rates have more than doubled in the past year,” Joel Kan, MBA’s deputy chief economist, said in a statement. “As a result of the drop in mortgage rates, both purchase and refinance applications picked up slightly last week.” He added that refinance activity is still more than 80% below last year’s pace.
The average interest rate for 30-year fixed-rate mortgages with conforming loan balances decreased to 6.67% from 6.90%, MBA said.
Write to Shaina Mishkin at firstname.lastname@example.org