US new-home sales fall as higher mortgage rates curb demand

Sales of new US single-family homes fell in September, partially reversing August's jump. The report attributed weaker demand to higher mortgage rates, which it linked to the Middle East conflict.^[1]

The median sale price—the midpoint of homes sold—also fell from a year earlier.^[1] Changes in the mix of cheaper and more expensive homes sold can move that measure, so it alone cannot establish price cuts on comparable homes.

Higher mortgage rates raise monthly payments on the same loan, leading some buyers to delay purchases or reduce their budgets. The reported demand weakness can make it harder for builders to sustain sales and increase pressure to cut prices or offer buyer incentives, either of which can squeeze profit margins.^[1]

The 10-year US Treasury yield, one influence on long-term mortgage pricing, stood at 4.99% on October 27, down from 5.12% on October 20. Whether that decline eases buyers' payment burden depends on the mortgage rates lenders actually offer.

Impact

• HomebuildersRisk

  Builders may need more incentives to close sales as mortgage costs constrain buyers. Persistent weakness could pressure both sales volumes and profit per home.^[1]

• Furniture, appliance and building-material suppliersRisk

  If weaker home sales persist, furniture and appliance sellers could lose some moving-related demand. Building-material suppliers could also face fewer orders if builders subsequently reduce construction.^[1]

What to watch next

• October 28: The MBA's 30-year mortgage-rate release, with a previous reading of 7.41%, will show whether financing pressure on homebuyers is starting to ease.
• October 28: The Fed's rate decision and press conference will offer clues about future borrowing costs; mortgage rates also depend on long-term bond markets.