New Home Sales Down on Rising Interest Rates, Declining Affordability
New home sales posted a double-digit percentage decline in April, falling to their weakest pace in two years, as rising mortgage interest rates and worsening affordability conditions continue to take a toll on the housing market.
Sales of newly built, single-family homes in April fell 16.6 percent to a 591,000 seasonally adjusted annual rate from a downwardly revised reading in March, according to data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. New home sales are down 26.9 percent compared to April 2021.
“The volume of signed sales contracts significantly declined in April as the cost of purchasing a home increased in 2022 as interest rates surged higher,” says Jerry Konter, chairman of the National Association of Home Builders. “Higher construction costs fueled by rising material prices and supply-side constraints along with limited existing home inventory are pricing many potential home buyers out of the market.”
In another indicator that deteriorating affordability conditions are particularly hurting the entry-level market, a year ago, 25 percent of new home sales were priced below $300,000, while in April this share fell to just 10 percent.
“The April drop for new home sales is a clear recession warning,” says Robert Dietz, NAHB chief economist. “The median price of a newly built single-family home increased 19.7 percent year-over-year. The combination of higher prices and increased interest rates are generating a notable slowing of the housing market. While the nation needs additional housing, home sales are slackening as tightening monetary policy continues to put upward pressure on mortgage rates and supply chain disruptions raise construction costs.”
A new home sale occurs when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the April reading of 591,000 units is the number of homes that would sell if this pace continued for the next 12 months.
In an indication that builders will be slowing construction, new single-family home inventory jumped to a 9 months’ supply, up 40 percent over last year, with 444,000 available for sale. However, just 38,000 of those are completed and ready to occupy.
The median sales price rose to $450,600 in April from $435,000 in March and is up more than 19 percent compared to a year ago, due primarily to higher development costs, including materials.