New Home Sales Sank Unexpectedly. Read More About Today’s Report.

The drop was a surprise. Economists had expected the measure, which counts the sale of a new home by the number of contract signings, to rise to a seasonally adjusted annual rate of 688,000, according to FactSet.

Sales growth was strongest in the Midwest. Contract signings in the region rose 25% from the month prior and were up 52% from November 2022.

Southern states saw the weakest growth, with a 21% drop-off from October and sales down 8.4% from the year prior. Still, the seasonally adjusted number of sales remained greatest in the south, with the region representing more than half of total sales.

Sales fell even as mortgage rates pulled away from the multidecade highs. Mortgage rates fell throughout November from a peak of 7.79% in October but remained above 7% through the end of the month, according to Freddie Mac.

That might sound paradoxical and it could be attributed to an early reading. Data can still be revised in the coming months.

Or it might capture a shift in buyer mentality. If buyers expect that mortgage rates will fall further, they might put plans to buy on hold instead of scrambling into a home.

Such a shift in buyer perception of future rates is one reason why Realtor.com said earlier this year it expects existing-home prices to fall slightly in the new year. (Barron’s parent company, News Corp, also owns Move, which runs the real estate listings sites Realtor.com and Move.com.)

Another possible explanation: Buyers may have taken advantage of lower rates to buy a previously owned home instead,
Zillow
said Friday. There were 1.15 million unsold existing homes at the end of October, according to the National Association of Realtors—up 1.8% from the month prior. The slight increase in inventory could be one reason sales of previously owned homes increased unexpectedly in November.

“Perhaps the slight increase in existing home inventory matched with rates floating off their peak, making an existing home more available and affordable, was enough to lure buyers away from the higher price tag of new homes,” Zillow senior economist Nicole Bachaud said.

November’s drop in new home sales is temporary, the National Association of Home Builders’ chief economist wrote Friday morning. “Elevated mortgage rates acted as a drag on new home sales in November, but with the economy now apparently past peak interest rates for this cycle, sales are expected to rise as we move into the new year,” Robert Dietz wrote on Friday.

Write to Shaina Mishkin at shaina.mishkin@dowjones.com