Sales of new homes dip by 2.5% in June

U.S. new-home sales declined in June for the first time in four months, suggesting high borrowing costs and prices are restraining momentum in the market.

Purchases of new single-family homes fell 2.5% to an annualized 697,000 pace after a downward revision to the prior month, government data showed Wednesday. The median estimate in a Bloomberg survey of economists called for a 725,000 rate.

Even with the decline, sales have rebounded over the past year thanks to limited inventory of existing homes. That explains why homebuilder sentiment is at the highest level in over a year, and contractors are applying to break ground on more single-family projects.

Still, high borrowing costs and elevated prices continue to pose affordability challenges. The median sales price of a new home declined to $415,400 from a year earlier, but that’s well above pre-pandemic levels.

The Federal Reserve on Wednesday increased interest rates to the highest level in more than two decades, which will likely keep mortgage rates elevated in the near term.

The number of homes sold in June and awaiting the start of construction — a measure of backlogs — rose to the highest level since February 2022.

There were 432,000 homes for sale as of the end of last month, in line with previous readings this year. That represents 7.4 months of supply at the current sales rate.

Sales dropped in the Midwest to the lowest level this year and in the West as well. In the South, sales rose to the highest level since the end of 2021.