Summary
Sales Slump in April
- New home sales plunged 16.6% during April, the fourth straight monthly decline and the second consecutive double-digit drop.
- While new home sales can be volatile on a month-over-month basis, April’s fall is the sharpest monthly contraction since July 2013, which coincided with a spike in mortgage rates following the Fed’s comments on forthcoming monetary policy tightening and resulting “taper tantrum.”
- The 591,000-unit annual pace of home sales was the slowest pace since April 2020 when sales came to a grinding halt at the onset of the pandemic.
- The pull-back in new home sales arrives against a back-drop of significantly higher mortgage rates. According to Freddie Mac, the average 30-year commitment rate for a fixed-rate mortgage was almost 5% in April, up from 4.17% in March.
- Borrowing costs only appear to be rising further, which should continue to weigh on housing activity over the next few months. As of this writing, the average 30-year fixed rate was 5.36%, according to Mortgage News Daily.
- Higher mortgage rates are just one part of the story. On top of higher rates, new home prices continue to rise at a rapid pace. The median new home price rose to $450,600, up 19.6% from April 2021.
- Rising financing costs and rapid price appreciation have caused many traditional buyers to take a step back from the housing market. In addition, some previously qualified buyers may no longer qualify under current interest rates.
- Home builders continue to contend with supply constraints which make completing new homes challenging. That said, the inventory of new homes has risen sharply, with a 9-month supply of new homes currently available for sale. The number of unsold homes that are currently under construction rose to 288,000 (highest since 2007), while inventories of completed homes for sale rose by 5,000 to 38,000 homes, the most since early 2021.