Sales of new single-family homes in June were at a seasonally adjusted annual rate of 590,000, down 8.1% from May and down 17.4% compared to a year ago. The sales pace is in line with that of April 2020, right after the onset of the COVID-19 pandemic.
“After months of racing to put up homes in order to meet the red-hot housing market conditions, builders are suddenly seeing more and more contract cancellations, sellers of existing homes cutting prices, and homes lingering on the market,” said Nicole Bachaud, an economist at Zillow, according to a statement. “Buyers, meanwhile, have scaled back their activity amid persistent affordability challenges and rising home buying costs.”
After reaching a peak of $450,000 in April, the median sales price of a new home came down to $402,400 in June, prompting sellers to rethink their pricing strategy as buyers lose purchase power to rising mortgage rates.
However, the good news of the slowing sales pace is an increase in inventory. At the end of June there remained 457,000 new houses for sale, representing a 9.3 month supply at the current sales pace, up from 7.7 months in May.
“Supply increased an estimated 17,000 units, and with builders continuing to wrestle with supply chain issues, any surplus of new homes is a win,” said Kate Wood, a home expert at NerdWallet, according to a statement.
New home sales were down month over month in three of the four major U.S. regions — the Northeast (5.3%), the South (-2.0%), and the West (-36.7%) — while the pace of new home sales rose in the Midwest (42.3%). Year over year, all four regions recorded declines, with the Northeast posting the largest decline at -37.9%, followed by the West (-32.9%), the Midwest (-22.1%) and the South (-8.7%).
The drop in new home sales is consistent with the continued decrease in homebuilder confidence, with the National Association of HomeBuilders/Wells Fargo Housing Market Index falling to its lowest reading since May 2020.
Despite the decline in builder confidence, industry experts contend the industry is still going strong.
“Builders are dealing with the twin vipers of increasing mortgage interest rates and increasing prices,” Tim Costello, chairman and CEO of BDX Inc., told RealTrends earlier this month. “But they are still fulfilling a huge amount of demand.”