New-home sales took a nosedive in April, with the seasonally adjusted annual rate of 591,000 units sold during the month registering as the lowest level of activity in two years.
According to data from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, April’s annualized sales pace is down 16.6% from the revised March rate of 709,000 units and 26.9% below the April 2021 estimate of 809,000. April’s decline was the fourth consecutive monthly decrease in new-home sales and the second straight month with a double-digit percentage-point plunge. Coupled with recent news of depressed single-family construction activity and continued existing-home weakness, April’s numbers add fuel to the fire of weakening homebuyer demand amid rising mortgage rates, low inventory and still-high prices.
Economists polled by Reuters had projected April new-home sales at 750,000, so the actual figure came in far below consensus expectations. New-home sales can be somewhat volatile month over month, but April’s decline marks the biggest 30-day decline since July 2013 — when mortgage rates also were sharply rising.
The new-home market, in particular, is sensitive to upward shifts in mortgage rates, noted Odeta Kushi, deputy chief economist at First American Financial Corp. Thus, the ongoing rate climb has been a big blow to sales.
“Affordability is a growing challenge as higher new-home prices and rising mortgage rates are pricing out some buyers,” Kushi said. “One year ago, 25% of new-home sales were priced below $300,000. In April of this year, only 10% of new-home sales were priced below $300,000.”
“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,” said Jerry Konter, chairman of the National Association of Home Builders (NAHB). “Higher construction costs fueled by rising material prices and supply-side constraints along with limited existing-home inventory are pricing many potential homebuyers out of the market.”
Indeed, worsening affordability keeps taking its largest toll on entry-level and first-time buyers. Homes priced at $399,000 and below comprised only 36% of new-home sales last month, Wells Fargo economists noted. That’s down 44% month over month and 58% year over year. Meanwhile, the share of new-home sales priced above $400,000 grew to 64%, up from 55% this past March and 42% in April 2021. And while sales are slowing, prices keep growing. New-home prices were up almost 20% year over year, with the median sales price rising to $450,600, a record high.
Slow sales have helped to slightly ease the ongoing inventory slump, with the supply of unsold new homes in April up to 44,000 units, a gain of 8.3%. April is the fourth straight month that inventory has grown, pushing the supply at the current sales pace to nine months, the longest since May 2010. Many of these homes, however, are still under construction; the number of unsold homes still being built in April grew to 288,000, the most since 2007. The share of completed, ready-to-occupy homes in April was 8.6%, dipping by 10.4% annually, while the share of new-home inventory still under construction rose from 62.8% to 64.9% over this same time frame.
NAHB chief economist Robert Dietz cautioned that April’s sales figures could spell troubles for the greater U.S. economy in the months ahead.
“The April drop for new-home sales is a clear recession warning,” Dietz said. “The median price of a newly built single-family home increased 19.7% 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.”