Home sales

New home sales fall 12.6% in July as rising prices take their toll

New home sales plunged in July as high prices and mortgage rates made buyers think twice about closing the deal.

New home sales fell 12.6% in July from June and 29.6% from a year ago, according to a joint report by the US Department of Housing and Urban Development and the US Census Desk. This is the second consecutive month of decline.

Just 511,000 new homes were sold last month, at a seasonally adjusted annualized rate, compared to a revised 585,000 in June. This is the lowest sales figure since January 2016. A year ago, 726,000 newly built homes were sold.

Meanwhile, the median price for a new home under construction rose to $439,400 from $402,400 the previous month.

New home sales are trending lower as potential buyers watch their budgets shrink due to long construction times, rising costs and rising mortgage rates. The average interest rate on a 30-year fixed-rate mortgage was above 5% throughout July, after rising more than two percentage points since January.

“New home sales continue to tumble under the weight of high prices and higher mortgage rates,” said Robert Frick, business economist at Navy Federal Credit Union.

As new home inventories rise, a pullback in prices is likely to come, Frick said, although there is a limit to their low level given the cost of materials, land and labor. works that are included in the builders’ costs.

“As builders withdraw plans to build more homes, we won’t be out of the current housing crisis for years,” Frick said.

The latest data continues to paint a difficult picture for the U.S. real estate market, said John Fish, CEO of Suffolk Construction and chairman of the Real Estate Roundtable.

“As the Federal Reserve attempts to reduce inflation, rising construction and land costs, supply chain disruptions and labor shortages are contributing to the growing gap between demand and housing supply,” he said.

In the short term, Fish said, controlling inflation will be an important step toward improving the housing market and the economy in general. But there are structural issues that need to be addressed for a prosperous long-term economy, Fish said, such as developing land-use policies aligned with federal and local governments, developing more housing and l investment in technologies that will help reduce the cost of construction to make development more attractive.

“We are seeing a housing recession in terms of declining home sales and home construction,” Lawrence Yun, chief economist for the National Association of Realtors, said last week after new data showed that existing home sales had fallen for the sixth month in a row. “However, this is not a house price recession.”

This time the housing market adjustment is expected to be much less severe than the 2008 correction as there are still fewer homes for sale than households willing to buy them, said Kelly Mangold of RCLCO Real Estate Consulting.

“The underlying demand for new homes for sale remains,” she said.

And a consequence of the slowdown for buyers is that there may be less competition and more price cuts.

“For those still motivated to buy, the market has become a less competitive space and buyers are not facing the bidding wars that characterized much of the early stages of the pandemic,” she said. .