House prices Are falling. Are buyers biting?

New home prices fell in October, the second consecutive month the market has seen a decline, but prospective homebuyers remain wary of jumping into the market as mortgage rates remain high.

The median sales price of a new single-family home sold for $409,300 in October down from the previous month’s $422,000, according to data from the U.S. Census Bureau and the Department of Housing and Urban Development. Overall, the average sales price stood at nearly $490,000 down from $515,000 at the same time last year.

The fall in prices was accompanied by a substantial decline of sales, which dropped 5.6 percent to nearly 680,000 from last month when sales soared by more than 12 percent. Compared to last year, sales of new homes were up by nearly 18 percent.

Mortgage rates have remained elevated over the past year due to interest rate hikes by the Federal Reserve that began in March 2022 to battle soaring inflation. Mortgage rates hit 8 percent during October, the highest level in more than two decades.

housing sales
In this aerial view, completed and under construction new homes at a site in Trappe, Maryland, on October 28, 2022. New home sales in the U.S. dipped in October even when compared to data from the same time a year ago on the back of high rates. (Photo by JIM WATSON/AFP via Getty Images)

There has been some evidence of a softening of mortgage rates over the past two weeks. Last week, lender Freddie Mac revealed that the 30-year fixed mortgage averaged 7.29 percent, while the 15-year rate was at 6.67 percent.

“New home sales surprised to the downside in October as climbing mortgage rates were an unavoidable drag,” Bernard Yaros, Lead U.S. Economist at Oxford Economics, said in a note shared with Newsweek. “With mortgage rates coming off their multidecade high, new home sales may perk up in November.”

New home sales were resilient in September with builders extending flexibility on pricing and even helping buyers to negotiate lower costs, analysts say. But in October soaring mortgage rates slowed the sector. Last month also saw a decline of existing home sales, as sellers were still unwilling to give up their lower rates to enter a market where they may pay upwards of 7 percent rates for a new mortgage.

“In October, existing home sales reached the lowest level since 2010 and the new home sales you know were higher than the previous year, but still fell month over month,” Hannah Jones, realtor.com’s economic research analyst, told Newsweek. “ A bad month for home sales.”

One silver lining in October was evidence that more new homes are available for sale, Jones said. At the end of the period, not adjusted for the season, there were nearly 450,000 more houses for sale in October up from the 437,000 the previous month.

The dynamic of improved supply of new houses for sale, declining rates and a stuck used homes market, the market may tilt towards buyers, analysts say.

“A frozen existing home market, along with homebuilder incentives, will also lend some support to the market for newly built homes,” Yaros said.

There may be less of a drop-off in sales in November, Jones told Newsweek.

“This data suggests that there’s relatively more new home supply in the market for buyers and the prices are a little bit lower and with mortgage rates coming lower too, it would naturally follow that you may see buyer activity pick up a little bit,” Jones said. “Buyers, who’ve waded through finding mortgage rates over the past few months, have an opportunity to get in the market before the end of the year.”