Elevated mortgage rates that averaged 7.62% in October per Freddie Mac, the highest rate since 2000, depressed buyer demand and pushed down new home sales in October.

Sales of newly built, single-family homes in October fell 5.6% to a 679,000 seasonally adjusted annual rate, following a notable downward revision in September, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The pace of new home sales in October was up 17.7% from a year ago.

“New home sales fell back in October as interest rates moved higher,” said Alicia Huey, chairman of the National Association of Home Builders (NAHB) and a custom home builder and developer from Birmingham, Ala. “Despite the challenging conditions, sales are up 4.6% on a year-to-date basis due to a lack of inventory in the resale market.”

“Median new home prices have moved lower as new home size has decreased in 2023,” said NAHB Chief Economist Robert Dietz. “Combined with sales incentives and a lack of resale inventory, demand has remained solid in 2023 and should improve in 2024 as interest rates move lower.”

A new home sale occurs when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the October reading of 679,000 units is the number of homes that would sell if this pace continued for the next 12 months.

New single-family home inventory in October increased to the highest level since January, up 8.3% from the previous month, to 439,000. This represents a 7.8 months’ supply at the current building pace. A measure near a 6 months’ supply is considered balanced. Of total inventory, including new and existing homes, newly-built homes made up 30% of all single-family homes available for sale in October – compared to a 12% historical average.

The median new home sale price in October was $409,300, down 3.1% from September, and down 17.6% compared to a year ago. Pricing is down both due to builder incentive use and a shift towards building slightly smaller homes. As a result, 33% of sales were priced between $300,000 to less than $400,000, compared to a year ago when just 20% of sales were in that range.

Regionally, on a year-to-date basis, new home sales are up 9.5% in the Northeast, 5.8% in the South and 2.5% in the West, while sales are down 0.3% in the Midwest.

For more on National Association of Home Builders (NAHB), click here.