In a joint report by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau, new home sales rose 25.4 percent in October when compared to September. The annualized pace of sale in October was 444,000 units, up from 354,000 in September. The increase represented the largest jump since May 1980, Mortgage News Daily reported. As a result of the government shutdown in the beginning of October, the report included data from both September and October.
The latest report is evidence that homebuyers are able to afford homes despite interest rates rising over the past few months. Mortgage News Daily reported that mortgage rates inched up to an average of 4.5 percent over the Thanksgiving week, up from the previous week's average of 4.375 percent.
The surge is also a surprise for economists, who predicted the annualized pace would reach only 425,000 units in October. New homes sales declined 6.6 percent in September, due in part to the end of the busy spring and summer seasonal selling period. During this time, it is typical for most real estate transactions to occur before slowing down in the fall and winter.
Mortgage rates The strengthening housing market and economic recovery have helped homebuyers absorb higher interest rates. In October 2012, interest rates averaged 3.36 percent for 30-year fixed rate mortgages. The Federal Reserve has continued its fiscal policy of $85 billion in monthly bond-purchasing, keeping interest rates artificially low and encouraging growth in the housing market. As Fed officials get closer to reducing their stimulus spending, mortgage rates have begun to rise toward a more sustainable level.
"The worst of the impact of higher mortgage rates seems to be behind us," Millan Mulraine, director of U.S. rates research at New York-based TD Securities USA LLC, told Bloomberg. "If we continue to see improvements in employment and if mortgage rates stay where they are, we should see these levels sustained."
Statements from Fed officials have made it clear they will not begin to taper the quantitative easing program of stimulus spending until the economy has shown significant improvement and will be able to continue growing without help. As the release of the November employment report by the U.S. Census Bureau approaches, mortgage rates have risen in anticipation of positive market signs. If the report reveals that employment levels are looking strong, the Fed may be closer to reducing spending.
The home sales report, however, reveals that rising mortgage rates are having little effect on homebuyers, as most housing markets remain affordable for Americans. In fact, rates dropped for a short time in October, but had little effect on the number of Americans who applied for a mortgage. The higher number of sales also indicates that demand for new homes is up. This is a good sign for the industry, which will help improve employment, as new home construction is still less than half of pre-recession levels.
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