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WASHINGTON – Sales of new U.S. single-family homes fell to a two-year low in April as high mortgage rates and rising prices put pressure on first-time buyers and those looking for entry-level property outside the housing market.
New home sales fell 16.6% last month to a seasonally consistent annual rate of 591,000 units last month, the lowest level since April 2020, the Commerce Department said Tuesday. March sales momentum improved to 769,000 units from 703,000 units previously reported.
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Sales have now fallen for four consecutive months. New home sales fell 5.9% in the Northeast and 15.1% in the Midwest. They declined 19.8% in the densely populated south and 13.8% in the midwest.
Economists surveyed by Reuters predicted that new home sales, which accounted for a small portion of U.S. home sales, would drop to 750,000 units. April sales fell 26.9% year-on-year. They peaked at 993,000 units in January 2021, the highest level since the end of 2006.
The real estate market is a part of the economy that is most sensitive to interest rates, and new home sales are a major indicator for this sector because they are calculated when signing a contract.
The 30-year fixed-rate mortgage jumped above 5% in April for the first time since February 2011, according to mortgage finance firm Freddie Mac. It rose an average of 5.25% in the week ended May 19 as the Federal Reserve raised interest rates to reduce domestic demand and reduce high inflation.
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Last week’s data showed that previously owned home sales fell to a two-year low in April, when single-family building permits were at their lowest since last October. The confidence of single-family homeowners was closer to a two-year low in May.
Despite signs that housing demand is declining, a record shortage of homes will likely limit sales declines. Restraining sales profits can increase supply and slow double-digit price growth.
The average new home price in April rose 19.6% to $ 450,600 from a year earlier. Almost all homes sold last month were above the 200,000 price level. There were 444,000 new homes on the market at the end of April, up from 410,000 units in March. Homes under construction make up about 65% of the property, while 27% of the houses have not yet been built
Home backlogs that have been approved for construction but not yet started are at an all-time high as builders are struggling with shortage and high prices for wood-like inputs for framing, as well as cabinets, garage doors, countertops and appliances.
It will take 9.0 months to clear home supplies in the market at the pace of April sales, up from 6.9 months in March.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao)