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U.S. new home sales drop, yet a resolute market trend prevails

by Admin

In a setback to the vibrant housing sector, the U.S. saw a slight dip in new single-family home sales in June, after a triumphant surge over three consecutive months. The overarching trend, however, remains resilient, buoyed by the enduring demand driven by a significant dearth of pre-owned homes. The Commerce Department reported a 2.5% drop in new home sales, which corresponded to a seasonally adjusted annual rate of 697,000 units for June. This follows May’s slightly revised sales rate of 715,000 units, a notable decrease from the previously reported 763,000 units, marking the highest sales pace since February 2022.

U.S. new home sales drop, yet a resolute market trend prevails

Senior Economic Advisor at Brean Capital, Conrad DeQuadros, posits the data as confirming a rebound in housing activity. He cites a consistent rise in the three-month average of sales since November 2022. Prior expectations by economists predicted a slightly higher rate of 725,000 units. New home sales, which constitute a minor share of overall U.S. home sales, serve as an early barometer for the housing market as they are counted at the signing of a contract. Despite a month-to-month volatility, June’s year-on-year basis sales showed an impressive 23.8% increase.

The deficit of existing homes, near historical lows, and the demand for certain properties have driven potential buyers to newly constructed houses, thereby stimulating homebuilding. This trend is further fueled by homeowners who are less inclined to sell, given their mortgage loans have rates below 5%. Current data from the Mortgage Bankers Association indicates a rate just shy of 7% for the popular 30-year fixed mortgage.

This inventory shortage is driving up house prices, reversing a downward or stagnant trend observed earlier in the year when higher mortgage rates led buyers to hesitate. The National Association of Home Builders indicates fewer builders resorting to incentives such as price cuts to boost sales. Despite the stabilizing housing market, recovery could be delayed due to increased mortgage rates and renewed house price appreciation.

The Federal Reserve is projected to raise interest rates by 25 basis points, following a steady borrowing cost in June. Since March 2022, the U.S. central bank has boosted its policy rate by 500 basis points. The financial market has seen a slight downturn with lower Wall Street stock trades and a dip in the dollar against a basket of currencies. U.S. Treasury prices, however, have risen. Economists express concern over the Federal Reserve potentially pushing interest rates further up, spurred by a revitalizing housing market, a move that some believe could be detrimental.

They argue that there remains a vast pipeline of homes, particularly multi-family units, yet to be completed. If an economic recession occurs, along with significant job losses and a spike in mortgage delinquencies, this could force homeowners to sell and consequently increase the supply. In June, new home sales saw a 20.6% rise in the Northeast and 4.3% in the densely populated South. Conversely, the West saw a 13.9% decrease, while the Midwest took a steep 28.4% plunge.

The median new house price was reported at $415,400, indicating a 4.0% drop from a year ago, while the average price hovered around $500,000. There were 432,000 new homes available on the market by the end of June, slightly up from May’s 429,000. Constructed houses constituted 60.2% of the inventory, while homes yet to be started accounted for 23.1%. Based on June’s sales pace, it would take approximately 7.4 months to exhaust the supply of houses on the market, a slight increase from May’s 7.2 months.

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