New home sales in the United States experienced a notable rebound in November, recovering from a downturn caused by hurricanes the previous month.
However, this positive development is tempered by concerns about rising mortgage rates, which could potentially dampen sales in the coming year.
The housing market, a key indicator of economic health, is currently navigating a complex landscape, influenced by both natural events and monetary policy adjustments.
November rebound: a surge in new home sales
The Commerce Department’s Census Bureau reported on Monday that new home sales jumped 5.9% to a seasonally adjusted annual rate of 664,000 units last month.
The sales pace for October was also revised upwards to 627,000 units, from the previously reported 610,000 units.
This growth surpassed economists’ forecasts, who predicted a rebound to a rate of 660,000 units, illustrating the market’s resilience.
New home sales, which account for approximately 15% of total US home sales, are recorded at the point of contract signing and tend to be volatile on a month-to-month basis.
Year-on-year sales figures for November showed an increase of 8.7%, highlighting an underlying strength in the market.
Mortgage rate volatility
Despite the positive sales figures, the housing market faces challenges from rising mortgage rates.
Data from Freddie Mac reveals that the average rate on the popular 30-year fixed-rate mortgage rose to 6.72% last week, after dropping to 6.60% in the prior week.
This volatility underscores the sensitivity of the housing market to fluctuations in interest rates.
Fed’s cautious approach
The Federal Reserve’s decision last week to cut its benchmark overnight interest rate by 25 basis points to the 4.25%-4.50% range, while anticipated, came with the projection of only two rate reductions in 2025.
This revised projection contrasts with their earlier outlook in September, which had suggested four quarter-point rate cuts in 2025.
The Fed’s more cautious approach reflects concerns over the economy’s continued resilience and persistent inflation.
This more modest rate cut path for next year also reflects the uncertainty over policies from President-elect Donald Trump’s incoming administration, including proposed tariffs on imported goods, tax cuts, and mass deportations of undocumented immigrants, which economists have warned could fuel inflation.
This uncertainty has also contributed to the yield on the US 10-year Treasury note touching a fresh 6-1/2-month high last week.
As mortgage rates are linked to the 10-year Treasury note, this increase is expected to further impact the housing market.
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