New Homes Sales Cratered in April Amid Rising Rates and High Prices

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Sales of new single-family homes in the US plunged in April, the fourth consecutive monthly decline, falling to the lowest level since April of 2020.

New home sales decreased 16.6 percent in April compared with the previous month to a seasonally adjusted annual rate of 591,000, the Commerce Department said Tuesday. That is just barely above the 582,000 level hit during the initial lockdown phase of the pandemic when the economy was brought to a near halt.

Economists had forecast home sales to fall 1.7 percent to 750,000 from the preliminary March report of 763,000. The March report was revised down to 709,000.

Existing homes sales have been cratering, as well. April home sales declined by 2.4 percent compared with March. At a seasonally adjusted annual rate of 5.61 million, sales were at the slowest pace since June of 2020, according to data released last week from the National Association of Realtors. Compared with a year ago, sales were off by 5.9 percent.

The sharp slowdown in home sales is consistent with the possibility of a recession beginning over the next 12 to 16 months. On the other hand, rising mortgage rates and rising home prices likely indicate that a recession is not yet imminent or already underway.

New home sales are off a sharp 26.9 percent below the April 2021 level, when purchases stood at an annual rate of 809,000. Ales were 26.9% below the same month a year earlier, when they stood at an adjusted annual rate of 809,000.

The median price of a new home jumped in April to $450,600 from $435,000 the previous month. That is an all-time record high. After adjusting for inflation, the pre-financial crisis high of 2007 would be $365,000 in today’s dollars. In real terms, new house prices are up by around 23.3 percent since 2007.

The average home price was even higher at a record $570,300, highlighting that many of the homes being purchased are at the pricier end of the market.

Mortgage rates have moved sharply higher this year. At the end of last year, the 30-year fixed conforming mortgage rate was at 3.353 percent. By the end of March, it had moved up to 4.811 percent. As April came to an end, it was at 5,415 percent. As a result, the monthly payment a buyer would owe on a home purchased in April is hundreds of dollars higher than what it would have been at the start of the year. That may have pushed some would-be buyers out of the market.

What’s more, sixty-nine percent of Americans say the economy is bad, according to a recent poll from CBS News and YouGov. Combined with worries about a recession looming in the near future may also be discouraging some families from buying. High levels of inflation and falling real incomes have hurt consumer confidence.

New home sales are counted at signing, so the figures for April would reflect market conditions and consumer sentiment at the time. Existing home sales are counted at closing, which typically happens 30 to 60 days after the signing, making them a lagging indicator.

Housing starts are counted when construction begins on a project and tend to be a leading indicator for both real estate and the broader economy. Single family housing starts fell in three of the first four months of the year. In April, single-family starts were down fell to a rate of 1,087,000, 13.4 percent below the March rate.

The number of single-family homes available for sale has been on steep climb. In April, there were 444,000 homes available for sale on a seasonally adjusted annualized basis. This represents a supply of nine months at the current sales rate, an indication that home builders have more than the typical supply of inventory. Around four to six months is normally considered a balanced, normal supply.

Supply chain constraints and a tight labor market are also holding back construction, leaving many homes unfinished. The inventory of new homes under construction is at 5.9 months, close to the record set in 1980. At 288,000, there are more homes under construction than any time since December 2006.

There are 118,000 homes for sale for which construction has not been started, the most ever, which is also reflective of supply constraints. This amounts to 2.4 months supply, almost double the normal level.

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