Soaring mortgage rates and high home prices appear to finally be taking a toll on the housing market.
Sales of newly constructed homes fell a steep 16.6% in April compared to March, according to data released Tuesday by the U.S. Census Bureau. Compared to a year ago, new home sales are down 26.9%.
This past April was the fourth consecutive month of declines, and it had the lowest total for new home sales since April 2020, when economic activity came to a crawl in the early days of the pandemic.
The median sale price of a new home was $450,600 in April, according to the Census Bureau, compared to $435,000 the previous month (a 3.6% bump) and $376,600 in April 2021 (a 19.6% bump). A perfect storm of factors including a surge in demand over the past two years, inventory constraints, supply chain issues, rising construction costs and even remote work are what's being blamed for those sky-high prices.
“While new construction gained favor with many would-be buyers over the past two years due to the extreme shortage of existing homes for sale, the rising cost of a new home is now pricing many people out of the market,” Realtor.com Senior Economist George Ratiu wrote.
Existing home sales are also falling, though not as dramatically. Sales fell 2.4% on a monthly basis in April, according to the National Association of Realtors (NAR) — the third consecutive month of declines.
And it’s not just home prices that are rising. Mortgage rates crossed the 5% threshold this spring, pushing up the monthly payment on a home with the median asking price for all homes to $2,447 during the four weeks ending on May 15, according to data from Redfin. That monthly payment is 43% higher than the comparable figure from the same time last year.
For hopeful buyers, especially those wading into the market for the first time, homes simply keep getting less and less affordable. So it shouldn't come as a surprise that a majority of Americans thinks that right now is a bad time to buy a house.
The housing market and a possible recession
The slump in the number of homes being sold has some experts talking about a slowdown in the economy more broadly. Robert Dietz, chief economist for the National Association of Home Builders, described the April data as a “clear recession warning.” Others view declining home sales as a sign that things are returning to normal after two years of extraordinary activity.
"It looks like more declines are imminent in the upcoming months,” NAR Chief Economist Lawrence Yun said last week, “and we'll likely return to the pre-pandemic home sales activity."
But don’t expect that change to happen overnight, even though more sellers are dropping their asking prices and more buyers are deciding to sit on the sidelines. At the same time, low inventory continues to make for a very competitive market, and homes are still selling quickly to buyers who can afford to pay cash or borrow at today’s rates.