Fed Fail? Sales of New Homes Crash as Higher Interest Scare Buyers Away

The Associated Press

President Donald Trump’s complaints that the Federal Reserve is raising interest rates too quickly just got some powerful supporting evidence from the housing market.

New homes sold at an annualized rate of 553,000 in September, down from a 585,000 pace in August, the U.S. Census reported Wednesday. Economists had expected sales to rise to a pace of 625,0000.

That represents a 5.5 percent month over month decline, and a 13 percent fall from a year ago, according to the  compared with a year ago, according to the U.S. Census.

Home sales can be volatile month to month. But home sales have been slow for months now, with the three-month sales average down to 580,000

Mortgage rates shot higher in September as the Fed prepared to raise its interest rate target for the third time this year. The Fed is expected to raise rates four more times between now and the end of 2019. Mortgage rates are now a full percentage point higher than a year ago, around 5 percent on the 30-year fixed rate.

These higher rates make home-buying more expensive and appear to have priced many would-be buyers out of the market.

New home sales are an important driver of economic activity. Home buyers purchase new appliances, furniture, electronics, and services. New car sales are related to new home sales, with home buyers often deciding to purchase a new auto to go along with the new home.

As a result, the unexpected drop in sales could mean that consumer spending on major home appliances and furniture come in lower than expected.

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