After a banner year for home prices, home sales are beginning to slow as rising mortgage rates and high home prices impact demand. Sales of new single-family homes fell at a seasonally-adjusted annual rate of 591,000 units in April, according to a report from the US Census Bureau and the Department of Housing and Urban Development. That’s 17% lower than the March rate of 709,000 households and 27% lower than the April 2021 estimate.
This is the slowest pace since April 2020, just as COVID-19 and lockdowns impacted the global economy. The report indicates that the buying frenzy may be starting to die down. The Federal Reserve has rising interest rates twice this year and said further interest rate hikes are expected later this year to slow inflation. Home ownership is becoming increasingly out of reach for many Americans as high interest rates collide with record high prices.
Housing affordability is an issue
The rate on a 30-year fixed rate mortgage is now averaging 5.09%, the highest since April 2010. Mortgage rates have climbed more than 2 percentage points since the start of the year. The combination of the greatest soaring mortgage prices in nearly four decades and rising house prices mean that a monthly mortgage payment is 52.5% higher than it would have been a year ago.
This dramatic increase is $500 more for a typical monthly mortgage than at the start of this year. Many borrowers, due to debt-to-income ratios, are no longer able to qualify for loans. Many more are starting to pull the line at these high prices and wait on the sidelines until home prices become more affordable.
Home buyers feel anxious and unprepared
In a recent survey conducted by TD Bank, 67% of first-time home buyers said they were concerned about their ability to afford a home, and 65% said homes were priced too high. Just 36% think now is a good time to buy a home, down from 59% in 2021 and 68% in 2020. With 7 in 10 worried about the economy, new home sales fell for the sixth consecutive month in may.
The US Census report showed the median selling price of a new home rose 19.6% from a year earlier, to a record high of $450,600. With prices so high, more and more Americans are unable to afford the typical 20% down payment of over $90,000. That’s almost 50% more than the down payment needed for a home bought in 2019, just before the pandemic.
The report also said there were 444,000 new homes for sale at the end of the month, the most since 2008. Pessimism among homebuyers is likely starting to grip the market, causing new home sales to plummet to pandemic-era lows. .
Inventory begins to increase
According to the Commerce Department, US housing starts unexpectedly rose 3.9% in March from a year earlier. Building permits, which are a leading indicator of residential construction, rose 6.7% from a year earlier. These figures show that homebuilders are increasing supply to meet demand and may be breaking that potential the owners need.
The stock of existing homes also continued to rise, up 5.5% from March, the second straight month of growth. The inventory shortfall from a year ago has also narrowed in each of the past three months. More inventory leads to a more balanced housing market: With more homes to choose from, this limits the number of buyers bidding on each home and encourages sellers to set competitive prices for their homes.
With house prices expected to rise further, the combination of high prices and rising inventory led Zillow to revise its future forecast of 14.9% growth for next year to 11.6%. Its forecast for existing home sales was also lowered, now predicting 5.73 million sales for this year, down 6.4% from 2021.
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