Rising mortgage rates and supply shortage were to blame
New home sales cooled in June due to a more than quarter-point increase in mortgage rates over the previous month, the Census Bureau reported Wednesday.
Sales of newly built, single-family homes decreased 2.5% to an annualized rate of 697,000 from a downwardly revised May reading of 715,000. While demand for new homes slowed in June, sales were up 23.8% year over year, and the overall sales trajectory remains positive, according to Kelly Mangold, principal at RCLCO Real Estate Consulting.
“Buyer demand remains strong, and a limited inventory of resales continues to bolster the new home market,” Mangold explained. “New home sales have been strengthened over the past year due to rising mortgage rates and a lack of existing home inventory, but the possibility of a recession later in the year may impact this trajectory – especially if mortgage rates decline and more resale inventory hits the market.”
Read more: Fed hikes interest rates again
Danushka Nanayakkara-Skillington, assistant vice president for forecasting and analysis at the National Association of Home Builders, voiced the same concerns: “The lack of existing inventory and the Federal Reserve nearing the end of its rate hikes signal that demand for new homes may rise in the coming quarters.”
The estimated new home supply remained balanced in June at 432,000, representing a 7.4 months’ supply at the current building pace. However, supply was down 3.6% from a year ago. Of that total inventory, 67,000 were completed, ready-to-occupy homes, up 91.4% from a year ago.
The median sales price of new homes sold in June was $415,400, down roughly 4% year over year. The average sales price was $494,700.
“As costs of materials get under control, homebuilders are more comfortable selling homes before construction has started,” said Holden Lewis, home and mortgage expert at NerdWallet. “Of the 60,000 new homes sold in June, 13,000 were on lots where ground hadn’t been broken. It’s a sign that homebuilders and homebuyers feel confident in the economy.”
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