Sales of new U.S. single-family homes fell in October by a larger margin than expected as interest rates approach 8%, making builders hesitant to build new homes in a market where a mortgage is becoming prohibitively expensive.

According to data from the U.S. Census Bureau and Department of Housing and Urban Development, sales of new single-family homes in October were at a seasonally adjusted rate of 679,000, which is 5.6% below the revised September rate of 719,000.

Integrators who count on new construction should find this data helpful, as they may want to consider supplementing their new residential projects with retrofits or other light commercial projects.

However, the figure is still 17.7% higher than the October 2022 estimate of 577,000,

Geographically, sales of new homes are becoming stronger in the Northeast and South, according to the data. Northeast sales were up 13.2% from September, and up 10.3% from October 2022.

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Similarly, the South reported a 2.1% rise from September and a 19.2% gain from last October.

Meanwhile, the Midwest and West regions reported respective losses of 16.4% and 23.3% from September. Both, however, were still up from October 2022 by 8.5% and 18.9%, respectively.

Placing the blame on elevated mortgage rates was the National Association of Home Builders, which in a press release cited the October average of 7.62%. Despite the unwillingness of buyers to take on expensive debt to buy a home, sales are still up 4.6% on a year-to-date basis due to a lack of inventory in the resale market, the NAHB says.

“Median new home prices have moved lower as new home size has decreased in 2023,” says NAHB Chief Economist Robert Dietz, in a statement. “Combined with sales incentives and a lack of resale inventory, demand has remained solid in 2023 and should improve in 2024 as interest rates move lower.”

In addition, the new single-family home inventory in October was 439,000, its highest level since January and 8.3% from the previous month. This represents a 7.8 months’ supply at the current building pace.

Home prices, are, however, beginning to fall. According to the data, the median sales price of new houses sold last month was $409,300, which is a dip of 3.1% from September and 17.6% compared to last October.

According to the NAHB, 33% of sales were priced between $300,000 to less than $400,000, compared to a year ago when just 20% of sales were in that range. This reflects builder incentive and a shift towards building slightly smaller homes.

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