New home sales unexpectedly explode, prices hit record high

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New home sales unexpectedly explode, prices hit record high
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The main transmission channel of the Federal Reserve’s monetary policy is supposed to be the real estate market. In October, however, the new home market did not listen to the Fed’s attempt to slow demand.

New home sales rose 7.5% to a seasonally adjusted annual increase of 632,000, the Commerce Department reported Wednesday.

That was well above the 575,000 forecast by analysts in the Econoday survey. The previous month’s figure was revised down to 588,000 from the initial report of 603,000, making the month-over-month gain even bigger.

The surge in new home sales occurred despite mortgage rates being high for most of October. The average rate on the 30-year fixed mortgage was above 7% for most of the month. Sales of new homes are based on contracts signed during the month.

It is unclear why sales increased so much in October. Some analysts have speculated that manufacturers may have made concessions, such as premium and other devices, to promote sales. Some buyers may have decided to pull the trigger to buy a home for fear that rates will rise even higher next month.

It wasn’t the prices that made buying a home more attractive. The median selling price for new homes sold in October hit a record $493,000, down from $455,700 in September.

The seasonally adjusted estimate of new homes for sale at the end of October was 470,000. That represents an 8.9 month supply at the current sales rate. This is well above the high end of the normal four to six month range.

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