New Home Sales Collapse 8.9 Percent Even as Prices Fall

Sales of new homes in the U.S. plunged in October.

Purchases of newly built single-family homes dropped 8.9 percent to a seasonally adjusted annual rate of 544,000 in October, the Commerce Department said Wednesday.

The decline was unexpected. After a weak initial read of 553,000 annual rate in September, economists had forecast a 4 percent rebound to 575,000.

Somewhat offsetting the weak read for October, however, the September figure was revised up to 597,000. So some of the sales that were expected to boost October actually came earlier.

Compared with a year ago, U.S. sales in October were down 12 percent.

The decline was even more remarkable because the median price of new homes declined in the month, which should have helped homes become more affordable. The supply of homes on the market rose to the highest level since February 2011.

But mortgage rates have risen in the last year to by around one percentage point, which may be enough to deter some buyers.

Sales declined all across the country, with the North East–the most volatile market–seeing the biggest decline.

New home sales are a relatively small slice of real estate sales in the U.S. but they can have big economic impacts. Building new homes employs skilled and unskilled workers in a variety of trades and professions. And purchases of new homes are typically accompanied by purchases of appliances such as washing machines, televisions, dishwashers, and refrigerators. So although new homes themselves are a small piece of the U.S economy, they can have a multiplier effect that spreads out through the broader economy.