New U.S. single-family home sales saw a significant rebound in November, recovering from the impact of hurricanes in the previous month. The Commerce Department’s Census Bureau reported a 5.9% increase to a seasonally adjusted annual rate of 664,000 units. This positive development, however, is tempered by concerns over rising mortgage rates, which could potentially hinder sales momentum in the coming year.
The October sales figures were also revised upwards, from the initially reported 610,000 units to a stronger 627,000 units. This upward revision further underscores the underlying strength in the housing market. Economists polled by Reuters had accurately predicted a rebound to around 660,000 units, highlighting the market’s anticipation of this positive trend. Year-over-year, new home sales, which represent approximately 15% of total U.S. home sales, experienced a robust 8.7% increase in November. It’s important to note that new home sales are recorded at the contract signing stage, making them susceptible to month-to-month fluctuations.
Despite the encouraging November figures, the looming threat of rising mortgage rates poses a significant challenge to the housing market’s continued growth. Data from mortgage finance agency Freddie Mac revealed that the average rate for the widely used 30-year fixed-rate mortgage climbed to 6.72% last week, following a slight dip to 6.60% the week before. This upward trend in mortgage rates could potentially dampen affordability and cool down buyer demand in the near future.
The Federal Reserve recently implemented a 25 basis point reduction to its benchmark overnight interest rate, bringing it to the 4.25%-4.50% range. However, the central bank’s projections for only two rate cuts in 2025 signal a more cautious approach compared to previous forecasts. This shift is attributed to the economy’s persistent resilience and persistently high inflation. Earlier in September, the Fed had anticipated four quarter-point rate reductions in 2025.
The revised outlook for fewer rate cuts next year also reflects uncertainties surrounding the incoming administration’s policies. Economists have cautioned that potential policies, including tariffs on imported goods, tax cuts, and changes to immigration policies, could exacerbate inflationary pressures. This cautious stance is further reinforced by the recent surge in the yield on the U.S. 10-year Treasury note, which reached a new 6-1/2-month high last week. Mortgage rates typically follow the trend of the 10-year Treasury note, solidifying concerns about rising borrowing costs for prospective homebuyers.
In conclusion, while the November rebound in new home sales offers a positive snapshot of the current housing market, the upward trajectory of mortgage rates and the Federal Reserve’s cautious outlook present significant headwinds. The interplay of these factors will likely shape the housing market’s performance in the coming months, potentially moderating the pace of growth. The long-term impact on the housing sector remains to be seen, dependent on broader economic conditions and policy developments.
