The news was disappointing, but not terribly so. We are referring to the dip in new-homes sales for October.

The Commerce Department reports sales came in at an annual rate of 368,000 units last month, which was 17,000 shy of the consensus estimate for 385,000 units. Pricing was also a minor disappointment. The median price for a new home dipped 4.2% to $237,000. This marked the second-consecutive month of price weakness.

Disappointing, yes, but hardly a cause for concern. Year over year, new-home prices are up 5.7%. Given the scant supply of homes, we don't see a backsliding trend developing. The number of new homes for sale is still only 147,000, representing a 4.8-month supply at the current sales pace.

The longer-term perspective is another reason to remain optimistic. New-home sales have averaged 361,000 per month on an annual-rate basis through October. In other words, sales are on pace to increase 18% this year.

What's more, we have plenty of room left to run. Even with the double-digit sales increase, 2012 will be the third-lowest sales year since the Census Bureau began tracking new home sales in 1963. It's also worth remembering that this year's average sales rate is still below the 375,000 average rate of sales in 2009.

Most estimates we've seen (which are likely conservative) expect new-home sales to double within the next couple years. This would put the annual sales pace closer to historical norms, which is around 1 million sales on an annualized rate.

Though new-homes sales disappointed in October, the trend in overall pricing – new and existing homes – remains strong. Most private data providers show prices increasing in more markets. This past week, Case-Shiller's home price index showed prices rose 0.4% in the 20 cities it follows. This was the sixth-constrictive month of price gains, with gains sweeping across all 20 cities.

The trend in purchase applications is also encouraging. Rising applications point to rising home sales. Rates continue to make new historical lows (albeit by a couple basis points) each week. Low rates contribute to a high-affordability index.

Low mortgage lending rates are an important variable in the home-purchase equation, but they are not the overriding variable. The above chart shows brisk sales even with lending rates 300 basis points higher than they are today.

In other words, low lending rates have done about all they can do to stimulate sales. At this point, the key variables for a sustained housing recovery are economic growth and more credit-worthy borrowers having access to credit.

Courtesy of Jessica Regan.

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