Sales of newly built homes in the US experienced a decline in April, according to the US Census. The data showed a 4.7% drop compared to March and a larger 7.7% decrease from the previous year. These numbers were further revised downwards for March, highlighting the significant impact of the housing market’s challenges.
One major factor contributing to the decline in sales is the higher mortgage rates. The average rate on a 30-year fixed mortgage rose from the high 6% range at the end of March to 7.5% in April. This sudden increase in rates has made homes less affordable for potential buyers, leading to a decrease in signed contracts.
Moreover, the median price of a new home sold in April was $433,500, a 4% increase compared to the same period last year. This rise in price can be attributed to the mix of homes being sold, which primarily consists of higher-end properties. Buyers in this segment are less influenced by mortgage rates as they often make all-cash purchases.
Builders are facing challenges when it comes to lowering prices due to high costs for land, labor, and materials. However, some big production builders, such as D.R. Horton and Toll Brothers, have managed to boost sales by buying down mortgage rates. Despite their success, the overall new build industry is still struggling to meet the average sales pace of the past five years.
Affordability remains a significant concern for potential homebuyers, especially those with lower incomes. A new index launched by the National Association of Home Builders and Wells Fargo reveals that 38% of a median household income is needed to make the mortgage payment on a median-priced new single-family home. For low-income families earning just 50% of the area’s median income, this percentage jumps to a staggering 77%.
The lack of supply in both new and existing homes continues to drive up prices. The resale market, in particular, suffers from a shortage of available homes in the lower price range. Although the number of newly built homes has increased by 12% compared to last year, these properties come at a premium and are out of reach for many lower-income buyers.
Robert Dietz, the chief economist at the National Association of Home Builders, emphasizes the need for policy changes to address the housing affordability challenges. This includes speeding up permit approval times, providing resources for skilled labor training, and fixing building material supply chains.
In conclusion, the decline in sales of newly built homes in the US can be attributed to higher mortgage rates and rising prices, both of which hinder affordability. Builders are facing difficulties in lowering prices due to high costs. The shortage of available homes in the lower price range further exacerbates the affordability issue. Policymakers need to enact changes that will enable builders to construct more homes and address the housing supply shortage.
