Here's Why New Home Sales Exploded In October

New home sales surged 25.4% month-over-month to an annualized pace of 444,000 in October.

While this seems like a huge jump, it is similar to rates of sales seen in Q1 (449,000) and Q2 (443,000) of 2013, before the lagged effect of higher mortgage rates, wrote Michael Gapen of Barclays.

Two key things prompted the surge we saw in October.

1. New home sales were coming up off a weaker base. New home sales were down 6.6% in September, they were revised down by 10% in August, and 5% in July.
2. The impact of rising mortgage rates was "heavier" than initially expected, but "entirely transitory," said Paul Diggle at Capital Economics. "After all, the level of new home sales in October was more-or-less exactly equal to the average level between January and June."

Diggle writes that the new home sales data shows that higher mortgage rates "will not derail the housing recovery."

Here's a look at the trajectory of new home sales:

Capital Economics