New home sales fell 16.6% in April from March, much more than expected, and were down 26.9% from April 2021, according to the US Census.
The annualized rate was 591,000 units, seasonally adjusted. Analysts were expecting 750,000. The March reading was also revised lower.
It’s the slowest pace of sales since April 2020, when it all came to a halt at the start of the Covid pandemic. Sales jumped quickly after that as Americans sought larger homes with outdoor spaces for quarantine.
These numbers are based on contracts signed during the month, not closings, so this may be the most recent indicator of the housing market. Mortgage rates, which had been rising since January, really took off in April. The average 30-year fixed loan rate started the month at 4.88% and ended it at 5.41%, according to Mortgage News Daily.
Consumers have been affected by rising interest rates and high inflation for four decades. This makes it even more difficult for them to afford today’s higher house prices. The median price of a new home sold in April was $450,600, an increase of almost 20% from the previous year.
“While new construction has gained favor with many potential buyers over the past couple of years due to the extreme shortage of existing homes for sale, the rising cost of a new home is now shutting many people out of the market” , said George Ratiu, senior economist at Realtor.com. “The new home market mirrors broader real estate trends as rising inflation takes a bigger slice of Americans’ paychecks and soaring borrowing costs squeeze homebuyers’ budgets.”
A sharp drop in demand, not excessive construction, is hitting the market. In fact, housing starts have declined in recent months. The slowdown in sales sent the stock of newly built homes jumping to a nine-month supply. A six month supply is generally considered balanced between buyer and seller.
Builders are also starting to see an increase in cancellation rates. Although these have yet to show up in earnings releases, analysts who follow automakers are starting to point it out.