Sales of new homes at lowest in 4 months
Sales of new U.S. homes fell in March to a four-month low, indicating high prices and surging borrowing costs are putting more of a squeeze on the market.
Purchases of new single-family homes decreased 8.6% to a 763,000 annualized pace, government data showed Tuesday. The median estimate in a Bloomberg survey of economists called for a 768,000 rate.
Mortgage rates have sharply escalated as the Federal Reserve signals aggressive steps to combat decades-high inflation. The average for a 30-year loan climbed to 5.11% recently, up 2 full percentage points from the end of last year and the highest since 2010, the latest Freddie Mac data shows.
The steep ascent in borrowing costs, combined with high home prices across markets, is sidelining more prospective buyers. The figures follow a separate report recently showing sales of previously owned U.S. homes fell in March to the lowest level since June 2020 amid mounting affordability concerns.
A separate report Tuesday showed home prices in 20 U.S. cities soared a record 20.2% in February from a year earlier, based on data from S&P CoreLogic CaseShiller. Nationally, prices surged 19.8%, the third-biggest increase in data going back 35 years, according to Craig Lazzara, global head of index investment strategy at S&P Dow Jones Indices.
The new-home sales report, produced by the Census Bureau and the Department of Housing and Urban Development, showed the median sales price of a new home was up 21.4% from a year earlier, to $436,700.
Though demand is showing more signs of easing, the pipeline for residential construction remains brisk. The number of homes sold in March and awaiting the start of construction — a measure of backlogs — increased from a month earlier to 255,000, the most in nearly a year.
“A combination of factors has contributed to this decline including rising interest rates and rising prices which have both hindered purchasing power for buyers,” Kelly Mangold at RCLCO Real Estate Consulting said in a note.
There were 407,000 new homes for sale as of the end of the month, the most since August 2008, with more than 90% under construction or not yet started.
At the current sales pace, it would take 6.4 months to exhaust the supply of new homes, compared with 5.6 months in the prior month.
Sales dropped in all four in U.S. regions, led by a 10.2% decline in the South and an 8.7% decrease in the Midwest.
New-home purchases account for about 10% of the market and are calculated when contracts are signed. They are considered a timelier barometer than purchases of previously-owned homes, which are calculated when contracts close.
The new-homes data are volatile; the report showed 90% confidence that the change in sales ranged from a 21.5% decline to a 4.3% increase.
Pending homes sales decline on rising rates
A gauge of U.S. pending home sales fell in March for a fifth straight month as rising borrowing costs put pressure on a market already squeezed by low inventory and high prices.
The National Association of Realtors’ index of pending home sales decreased 1.2% from a month earlier to 103.7, the lowest since May 2020, according to data released Wednesday. Economists in a Bloomberg survey called for a 1% drop.
Homes are getting increasingly unaffordable as rising mortgage rates strain buyers already grappling with high prices and low inventory. A gauge of U.S. mortgage applications tumbled recently to the lowest level since late 2018 as the average 30-year contract rate rose to 5.37%, the highest since 2009.
The Federal Reserve is expected to hike interest rates next month by the most since 2000 in a stepped-up fight against decadeshigh inflation.
“The sudden large gains in mortgage rates have reduced the pool of eligible homebuyers, and that has consequently lowered buying activity,” NAR’s chief economist Lawrence Yun said in a statement.
“The aspiration to purchase a home remains, but the financial capacity has become a major limiting factor.”
By region, contract signings fell in all regions except the Northeast. Compared with a year earlier, contract signings were down by 8.9% on an unadjusted basis.
The pending home sales index is based on contract signings, rather than when a contract closes like existing home sales. Sales of previously owned U.S. homes fell in March to the lowest since June 2020.