New Home Sales Bounce Back in November, But Mortgage Rate Hike Looms
The US housing market received a much-needed boost in November, with new single-family home sales surging 5.9% to a seasonally adjusted annual rate of 664,000 units. This rebound follows a sluggish October, which was heavily impacted by hurricanes. According to the Commerce Department’s Census Bureau, the sales pace for October was revised upward to a rate of 627,000 units, surpassing initial estimates.
Economists Predicted a Rebound, But Will It Last?
Economists polled by Reuters had forecast a rebound to a rate of 660,000 units, and the actual numbers exceeded these expectations. New home sales, which account for approximately 15% of US home sales, are counted at the signing of a contract and can be volatile on a month-to-month basis. However, the 8.7% year-over-year increase in November is a promising sign.
Mortgage Rates on the Rise
Despite the positive news, rising mortgage rates could pose a challenge to the housing market in the coming year. The average rate on the popular 30-year fixed-rate mortgage climbed to 6.72% last week, up from 6.60% in the previous week, according to data from mortgage finance agency Freddie Mac. This increase is closely tied to the yield on the US 10-year Treasury note, which reached a fresh 6-1/2-month high last week.
Federal Reserve’s Rate Cut Path May Impact Housing
The Federal Reserve’s recent decision to cut its benchmark overnight interest rate by 25 basis points to the 4.25%-4.50% range may not be enough to offset the impact of rising mortgage rates. The Fed’s latest projections indicate only two rate reductions in 2025, citing the economy’s continued resilience and still-elevated inflation. This shallower rate cut path may be influenced by uncertainty surrounding policies from the incoming administration, including tariffs, tax cuts, and immigration reforms, which economists warn could be inflationary.
What’s Next for the Housing Market?
As the housing market heads into the new year, it remains to be seen whether the November rebound will be sustained. With mortgage rates on the rise and the Federal Reserve’s rate cut path uncertain, homebuyers and sellers alike will be watching closely to see how these factors impact the market. One thing is clear: the housing market is poised for a wild ride in 2025.
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