New home sales dropped 16 percent in April, hitting pre-pandemic pace
Sales of newly constructed homes plunged in April as rising interest rates and a historic surge in sale prices kept the housing market in a slowdown.
Sales of new single-family houses fell 16 percent to a seasonally adjusted yearly pace of 591,000 homes sold in April, down sharply from a revised rate of 709,000 homes sold per year in March. New home sales have fallen in five consecutive months and by more than 10 percent in both March and April.
The median sale price for a new home also rose to $450,600, up from $435,000 in March, and the April average sale price jumped to $570,300 from $522,500 in March.
“The housing market is now back to pre-pandemic levels, so this massive hit in April should not be construed as the popping of a bubble,” said Jeffrey Roach, chief economist for LPL Financial, in a Tuesday analysis.
The housing market had been roaring hot throughout most of 2020 and 2021, with both home sales and prices soaring until the end of last year.
The rise of teleworking and remote learning pushed more Americans to buy or upsize homes as ultra low interest rates and a flood of fiscal stimulus fueled higher demand. Longstanding shortfalls in home construction and a reluctance among some owners to sell their homes kept up pressure on prices, leading to increases of nearly 20 percent nationwide.
The hot housing market, however, has begun to cool off as the Federal Reserve raises interest rates and American families feel the strain of rising prices across the economy. The average interest rate for a 30-year fixed rate mortgage is roughly 5.4 percent this week, according to Bankrate.com, after lingering near 2 percent in the beginning of the year.
As the Fed raises its baseline interest rate range and previews future hikes, banks and mortgage lenders set higher rates on home loans as borrowing costs across the economy increase. While interest rates on credit cards are tied directly to Fed actions, banks and lenders set mortgage rates based largely on how the market for Treasury Department bonds acts from day to day.
“Rising prices and increasing borrowing costs are dampening housing demand, especially for first-time buyers. The average 30 year mortgage rates constantly crept up in April, stifling loan demand,” Roach said.
A steady decline in home sales may ease some pressure on housing prices as fewer buyers compete for homes on the market. Even so, rising interest rates and supply chain disruptions will also limit home construction from filling a deep pre-pandemic shortfall of housing exacerbated by the past two years.
Slowing home sales could also slow the overall pace of the economy, as home purchases and the spending needed to furnish them are a key contributor to gross domestic product.
“New home sales will likely recover near-term as some homebuyers draw up new budgets and adjust to higher interest rates,” said Bill Adams, chief economist for Comerica Bank, in a Tuesday analysis.
“Many other buyers will simply be priced out, and either turn to the multifamily market or rent. Home price increases are set to cool considerably in the next few months as this transition unfolds.”
Source: TEST FEED1
