New-home sales plummeted to a seasonally adjusted annual rate of 590,000 in June, the slowest pace since the opening, lockdown-impacted months of the COVID-19 pandemic, the U.S. Department of Commerce reported.
Last month’s sales rate was down 8.1% monthly and 17.4% yearly, tumbling to its lowest level since April 2020. May’s sales pace was revised downward as well, with estimates shifted to a 642,000-unit pace. Economists surveyed by Reuters had predicted that new-home sales in May would drop from the originally reported 696,000 units to an annualized rate of 660,000 units.
Year to date, new-home sales are down 13.4%. The sharp monthly sales contraction and downward revision to May’s figures are another clear sign that rising interest rates, widespread inflation and high home prices have stifled homebuyer demand and activity.
“Buyers are balking due to deteriorating affordability conditions and growing sticker shock,” said Danushka Nanayakkara-Skillington, assistant vice president for forecasting and analysis for the National Association of Home Builders (NAHB). “Only 14% of new-home sales in June were priced below $300,000. A year ago, it was 27%.
“This is just the second time that new-home sales have fallen below a 600,000 annual pace since Oct. 2018,” NAHB chairman Jerry Konter said. “And this latest report also mirrors a sharp decline in builder confidence as noted in our latest survey.”
The NAHB reported earlier this month that builder confidence fell for a seventh consecutive month in July. The NAHB/Wells Fargo Housing Market Index fell 12 points to a reading of 55, its lowest point since May 2020 and the largest single-month drop in the history of the index, save for a 42-point drop at the beginning of the pandemic.
“We had thought the weakness in the July NAHB survey would take another month to show up in sales,” according to Wells Fargo commentary co-authored by economists Mark Vitner, Charlie Dougherty and Patrick Barley. “Data from the Mortgage Bankers Association indicated a higher level of closings in June as buyers attempted to stay ahead of future rate hikes. That rush appears to be over.
“New-home sales provided one of the first indications the economy would rebound rapidly from the pandemic and that price pressures would be greater. The recent slide in new-home sales suggests price increases and rising interest rates are choking off demand much more quickly, and are ushering in a more pronounced overall economic slowdown.”
The easing of sales has led to builders slashing prices and offering discounts to offset higher mortgage rates, leading to a regression in new-home prices. The median new-home price in June plunged 9.5% to $402,200 and has dropped nearly 12% in two months.
Sales deceleration also has led to a notable inventory increase, with new-home supply up 2.2% monthly in June to 457,000 units, the most since April 2008. The inventory of new homes is at roughly 9.3 months at the current sales pace, the highest since May 2010. While such figures may seem positive relative to the shortages of late, Wells Fargo economists estimated a preferred level of inventory at a supply of four to five months.