- Sales of new homes declined through April to an annual rate of 591,000 units, the U.S. Census Bureau said.
- It landed below the average forecast at a rate of 750,000 homes and was the lowest rate in two years.
- Affordability for housing has been beaten down by high mortgage rates and record high prices in 2022.
Sales of new homes in the US plunged in April to the lowest rate in two years when buyers’ demand collided with sky-high mortgage rates and sky-high sales prices.
Sales of new detached houses declined through April at a seasonally adjusted annual rate of 591,000 units, the US Census Bureau said Tuesday morning. It landed well below the economist’s forecast of a rate of 750,000 homes and reflected a decline of almost 17% from last month’s rate.
The sales rate is now the lowest since April 2020, when the coronavirus crash and extensive shutdowns dampened activity throughout the US economy.
Sales of new homes in March were revised at a rate of 709,000 from a preliminary rate of 763,000 units.
The report gives an early sign that the buying frenzy that has strengthened the housing market through the pandemic can quickly lose momentum. Sales began to decline in 2021, when Americans managed the fastest house price growth in decades. The price increase has remained strong through 2022, and provides little relief for buyers trying to find a deal.
High interest rates have also put pressure on demand. The
has raised interest rates twice this year in an attempt to cool demand and ease inflation. These interest rate increases increase borrowing costs throughout the economy, including through higher mortgage rates. Mortgages are now the most expensive they have been since 2009, which further weakens the reasonableness of the housing market.
“Affordability is an increasing challenge as higher house prices and rising mortgage rates price out some buyers,” Odeta Kushi, First Americans’ chief economist, told Insider. “One year ago, 25% of new home sales were priced below $ 300,000. In April this year, only 10% of new home sales were priced below $ 300,000.”
As prices rise, millions of home buyers have been priced out of the market – especially US first-time home buyers. According to a study from TD Bank, demographics are increasingly intimidated by homeownership.
TD Bank surveyed more than 1,000 hopeful buyers and found that 29% were unsure whether now was a good time to buy a home. Of all the concerns, reasonableness seemed to be the biggest issue, as 67% of participants mentioned it as a concern, while 46% said saving for a
was their biggest obstacle to home ownership.
“Low inventory, strong competition and high prices in many areas across the United States fuel fears for buyers and create an even more frightening obligation for those entering the market for the first time,” the researchers wrote.
Overall, TD’s survey found that only 36% of this year’s potential home buyers thought it was a good time to buy – a sharp decline from 59% in 2021 and a ‘dramatic drop’ from 2020, when 68% of potential buyers said it was a good time to buy a home.
Tuesday’s report suggests that pessimism is finally entering market activity. As buyers become more and more vigilant towards the market, any speculation about a housing bubble can be put to rest – especially if demand continues to decline.