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Low Mortgage Rates Help Struggling New Home Sales

Low mortgages rates are the only factor holding up the U.S. housing market after reports of declining new single-family home sales in December. On Jan. 27, Reuters reported details from the Commerce Department that showed new homes sales dropped nearly half a percent last month, continuing the consecutive decline that began in October.

December's 0.4% drop in new home sales to a seasonally adjusted annual rate of 694,000 units conflicted with economists' predictions of an increase by 1.5% with a rate of 730,000 units. The news is particularly troubling as new home sales account for more than 11% of overall housing market sales.

"The housing market is being supported by cheaper mortgage rates after the Federal Reserve cut interest rates three times last year," Reuters reported. "The 30-year fixed mortgage rate has dropped to an average of 3.6% from its peak of 4.94% in November 2018, according to data from mortgage finance agency Freddie Mac."

Predictions for November new home sales also fell short following revisions from the estimated 719,000 units to 697,000 units. While sales ranged between $200,000 and $749,000, new homes went for below $200,000. Despite the solemn news, new home sales increased overall in 2019 by 10.3% to 681,000 units.

—Andrew Michaels, editorial associate

Strategic Global Intelligence Brief for January 27...
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Wednesday, 26 February 2020