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New home sales fell nearly 17% in April as buying becomes even less affordable | Focus Economy

The twin effects of high house prices and rising mortgage rates weighed on new home sales in April.

New home sales fell 16.6% in April from March and 26.9% from a year ago, according to a joint report by the US Department of Housing and Urban Development and the US Census Office. It was the fourth consecutive month of decline, with sales falling to the lowest level since the early days of the pandemic in April 2020.

Only 591,000 homes were sold last month, compared to a revised 709,000 in March.

Buyers have seen their budgets shrink due to long construction delays, rising costs and rising mortgage rates. The average interest rate on a 30-year fixed rate mortgage topped 5% in mid-April and is now up 2 percentage points since January.

“High construction costs and soaring mortgage rates are keeping many buyers away this spring,” said George Ratiu, senior economist and head of economic research at

New construction has attracted many potential buyers who have encountered a lack of existing homes to choose from over the past two years, but the rising cost of a new home is now shutting people out of the market, he said. .

The median price for a new home construction was $450,600 in April, up 20% from a year ago, when the median price was $376,600. Given rising prices and rates, the monthly principal and interest payment for a median-priced home is 57% more expensive today than a year ago, costing $720 more per month to one owner, according to Freddie Mac’s figures.

The move in the new home market reflects broader real estate trends in which rising inflation is putting more pressure on Americans’ paychecks and soaring borrowing costs are reducing homebuyers’ purchasing power.

This pushed a lot of first-time buyers away.

“With affordability plummeting, new homes have become a luxury for capital-intensive exchange buyers or cash-flow investors looking to turn them into single-family rental developments,” Ratiu said.

Newly built homes at lower prices remain a small part of the market. Sales of entry-level new homes — those priced below $300,000 — accounted for less than 20% of total new home sales in April.

While labor costs remain high, material prices are showing signs of moderating. That could provide some relief from high construction costs, said Ratiu, who noted that the price of wood was falling.

Homebuilder sentiment, which measures builders’ perceptions of current selling conditions, potential buyer traffic and sales expectations for the next six months for single-family homes, fell in May, according to the National Association. of Home Builders/Wells Fargo Housing Market Index, released last week. It was the fifth month in a row that builder sentiment declined and was the lowest reading since June 2020.

NAHB chief economist Robert Dietz said the cost of building materials was up 19% from a year ago and less than 50% of new and existing home sales were affordable for a family. kind.

“Entry-level buyers and first-time homebuyers are particularly hard hit by this rapid rise in mortgage rates,” Dietz said.

But some housing experts say the rise in interest rates is having the effect of cooling a housing market that has collapsed.

“New home sales are likely to pick up in the near term as some buyers re-budget and adjust to higher interest rates,” said Comerica Bank chief economist Bill Adams. “House price increases are expected to slow significantly over the coming months as this transition unfolds.”

While some potential buyers will simply be overpriced, demand is still strong, there is unlikely to be a big drop in house prices, he said.

Demand remains strong due to the rise of remote work and other lifestyle changes, Adams said. “Robust final demand, a very strong labor market and the absence of the types of sub-prime mortgages that existed in the early 2000s should make the market more resilient to higher mortgage rates.”


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