New-Home Sales Surge. It’s Still a Mixed Picture for Housing.

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Sales of new homes unexpectedly rose in October, painting a mixed picture of buyer demand in October. Existing-home sales, housing starts, and builder confidence all fell month-over-month in October.

Yet there was another bright spot: mortgage rates retreating from 7% are helping boost demand from home buyers. The average rate on a 30-year fixed-rate mortgage this week was 6.58%,

Freddie Mac

said Wednesday.

Homes in October were sold at a seasonally-adjusted annual rate of 632,000, representing a 7.5% increase from September’s revised rate of 588,000. according to government data—which is based on contract signings—released Wednesday. Consensus estimates gathered by

FactSet

had anticipated sales falling to a seasonally-adjusted annual rate of 572,000.

October’s figures were 5.8% below the same month last year, according to the data, released by the Census Bureau and the Department of Housing and Urban Development.

The surprise gain follows mortgage rates’ rise above 7% for the first time in two decades. Since the last week in 2021, the average mortgage rate on a 30-year fixed-rate home loan has more than doubled.

There’s reason to be skeptical of the increase, wrote Matthew Walsh, an associate economist at Moody’s Analytics, in an analysis following the release. The metric can be volatile and is frequently revised, Walsh wrote. “Additionally, the sharp increase in new-home sale cancellations means data likely overstate sales,” the economist said, adding that the data doesn’t account for cancellations.

The increase in October could be due to builder incentives and a low supply of previously-owned homes for sale, Danushka Nanayakkara-Skillington, the National Association of Home Builders’ assistant vice president for forecasting and analysis, wrote in a blog post.

According to the trade group, 59% of builders in November said they used incentives, such as paying points, cutting prices, or buying down mortgage rates, to drive buyer traffic.

Buying a home has gotten more expensive as mortgage rates have risen this year. Recently, however, they have given back some ground. The 6.58% average rate on a 30-year fixed-rate mortgage this week is still high compared with 2021, when the average 30-year fixed rate ended the year at 3.11%. But it represents a significant pullback from early November, when rates hovered around 7%.

“In recent weeks, rates have hit above seven percent only to drop by almost half a percentage point,” Sam Khater, Freddie Mac’s chief economist, said in a statement. “This volatility is making it difficult for potential homebuyers to know when to get into the market, and that is reflected in the latest data which shows existing home sales slowing across all price points.”

The drop in rates 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: the volume of home purchase loan applications increased for the week ended Nov. 18, up 3% on a seasonally adjusted basis from the prior week, according to Mortgage Bankers Association data released Wednesday. Despite the week-over-week increase, buyer 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 [email protected]