Why are new home sales slumping?

WASHINGTON - The rising cost of residential real estate and a slowdown in the U.S. economy is making it harder to sell a house.

Sales of new homes plunged in September to the slowest pace in 10 months, the U.S. Commerce Department said Monday, a sign that higher prices and sliding economic growth weigh on the housing market. New-home sales slumped 11.5 percent last month to a seasonally adjusted annual rate of 468,000, the lowest level since November of 2014.

September's drop ended a two-month streak of accelerating sales.

Monthly sales of new home often fluctuate sharply, and some forecasters cautioned against reading too much into the latest figures. Pointing to other indicators that show the sector continuing to rebound, such as the National Association of Home Builders' housing activity index, economist Stephen Brown of Capital Economics said in a note that "we are confident that new home sales will rebound strongly in the coming months."

Americans' zeal for newly built homes took off this year, yet now appears close to having topped out. Solid hiring over the past three years has improved many family balance sheets, while rising home prices has returned equity to current homeowners now seeking to upgrade to new residential developments. Sales of new homes have soared 17.6 percent during the first nine months of 2015.

The median sales price of a new home rose 2.7 percent last month to $296,900, the highest price level this year, according to Oxford Economics.

But global pressures began to exert a downward pull on economic growth in recent months. Those pressures could be spread to the housing market if the drop in sales of new homes leads to a decline in construction.

"A stronger pace of sales will need to be seen for the recent stronger pace of single-family housing starts to be sustained," said Ted Wieseman, an economist at Morgan Stanley.

Job gains slowed in September, while profit margins for many of the largest U.S. businesses with a global footprint stopped growing. The stronger dollar has punished exports abroad and cheaper oil prices have forced energy firms to cut workers and slash orders for pipeline and equipment.

The slowdown has yet to hit sales of existing homes as drastically, but the September pullback in newly built properties was severe.

Purchases of new homes slid in the Midwest, South and West, but plummeted a stiff 61.8 percent in the Northeast.

Prices have climbed sharply as well, making new construction less affordable for would-be buyers. The median new-home sales price has jumped 13.5 percent from a year ago to $296,900.

The housing market has advanced from the depths of the Great Recession, although it has yet to fully recover from the bursting of the housing bubble and the 2008 financial crisis. Sales of new homes remain below the 52-year historic average of 655,200.

The drop in sales increases the supply of new homes on the market. The Commerce Department said 5.8 months' supply of homes were available at the end of September, compared to a scant 4.9 months a month ago.

Still, inventories are tight across the housing sector. The National Association of Realtors said last week that existing homes sold at a seasonally adjusted annual pace of 5.55 million, advancing 8.8 percent from a year ago. But the number of listings on the market has dropped 3.1 percent during that time.

Offsetting some of the economic pressures have been relatively low mortgage rates. The rate for a 30-year fixed mortgage averaged just 3.79 percent nationwide last week, according to mortgage buyer Freddie Mac, far below historical norms.

Experts think other factors also will support housing sales.

"Looking at the fundamentals, slowly accelerating wage growth, rising employment, historically high affordability, and the gradual release of pent-up demand will underpin a gradual rebound in housing activity," economists with Oxford Economics said in a client note.