Implications:  New home sales posted the largest monthly decline since 2013 in October, coming in well below consensus expectations and hitting the slowest pace in two years.  However, it looks like this was a result of one-off factors surrounding Hurricanes Helene and Milton, which temporarily delayed sales. The southern region, which is the largest in the US, was almost solely responsible for the decline in October and took the brunt of the extreme weather. Keep in mind that new home sales are a timelier barometer of the housing market because they are calculated when contracts are signed, while existing homes are only counted after the sale is closed, so we saw the impacts here first and will likely see a rebound in the months ahead. That said, the housing market continues to face other challenges. While thirty-year fixed mortgage rates were falling in the lead up to the initial Fed rate cut announcement in September, that has reversed with rates back above 7%. One piece of good news for potential buyers is that, even though prices are up in the past year, the median sales price of new homes is down 5% from the peak in 2022. It does look like a small part of this decline reflects a lower price per square foot as developers cut prices.  The Census Bureau reports that from 2022 to 2023 (the most recent data available) the median price per square foot for single family homes sold fell 1.1%. While that decline is modest, it represents a stark reversal from the 45% gain from 2019 to 2022.  That said, most of the drop in median prices is likely due to the mix of homes on the market including more lower priced options as developers complete smaller properties. Supply has also put more downward pressure on median prices for new homes than existing homes.  The supply of completed single-family homes is up over 265% versus the bottom in 2022. This contrasts with the market for existing homes which continues to struggle with an inventory problem, often due to the difficulty of convincing current homeowners to give up the low fixed-rate mortgages they locked-in during the pandemic.  While the future cost of financing remains a question, lower prices and an abundance of inventories are giving potential buyers a wider array of options will eventually help fuel a rebound in new home sales. In other housing news this morning, home prices rose in September, with the national Case-Shiller index up 0.3% and the FHFA index jumping 0.7%.  In the last twelve months, these indices are up 3.9% and 4.4%, respectively.  On the manufacturing front, the Richmond Fed index remained unchanged at -14 in November, highlighting ongoing weakness in that sector.

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