New home sales witnessed a sharp decline of over 11% in May, reflecting the challenges posed by high mortgage rates and elevated home prices during the peak season for the housing market.
According to the Department of Housing and Urban Development and the Census Bureau, new single-family home sales fell to 619,000 in May, a significant drop from April's 698,000. This marks a 16.5% decrease compared to May 2023, when 741,000 homes were sold.
Experts cite elevated mortgage rates as a key factor in the slowdown. Holden Lewis, a home expert at NerdWallet, highlighted that the average 30-year fixed mortgage rate in May was above 7%, an increase of about 0.6% from the previous year.
"New home sales plunged in May, compared to a year earlier, because mortgage rates above 7 percent made ownership unaffordable to many would-be buyers," Lewis told Newsweek.
This trend was consistent nationwide, with the Northeast experiencing a nearly 44% decrease in new home sales, the Midwest down by nearly 9%, the South dropping by 12%, and the West falling by 4.5%.
The median sale price of new homes slightly decreased by $500 to $417,400, while the average sale price rose to $520,000, an increase of approximately $16,000 from April.
Realtor.com's senior economic data analyst, Hannah Jones, observed that potential buyers are waiting for better conditions before making a purchase.
"There's inventory on the market. There are options, but because of where prices and mortgage rates are, it's just not feasible for a lot of homeowners," she explained to Newsweek. "What we're seeing is everyone just kind of holding off, waiting for that more hopeful future where either prices do finally give because of the build up in inventory or mortgage rates give and buying a home becomes more affordable."
Despite the overall decrease in sales, revised data for February through April showed an average of 32,000 more sales per month than initially reported, representing a 5% increase. Additionally, the number of homes available on the market rose, with listings now equivalent to a 9.3-month supply at the current sales rate, the highest since October 2022, according to Bill Adams, chief economist at Comerica Bank.
"With fewer sales and more houses for sale, listings were equivalent to 9.3 months' supply at the current sales rate. This is the most months' supply of new homes since October 2022," Adams noted in a statement to Newsweek.
Adams also mentioned that home builders are constructing smaller homes to make new properties more affordable.
"New home prices are falling slightly in year-over-year terms, largely reflecting homebuilders' efforts to aid affordability for buyers by economizing on floor plans," Adams said. "In aggregate, the market seems decently balanced, albeit with a very different mix of choices for homebuyers than have been typical over the last few decades."
The increase in home listings offers a glimmer of hope for buyers.
"The overhang of new home listings will likely keep a lid on house price increases in the second half of 2024," Adams pointed out. "That will make homebuying a little less unaffordable, and also contribute to cooler inflation in 2025."
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