High mortgage rates are continuing to deter buyers
Sales of new homes across the US plummeted in May, hitting their lowest level since November as high mortgage rates and affordability struggles continued to grip the national housing market.
Government data released on Wednesday morning showed an 11.3% drop in new single-family home sales last month, with the annual pace of 619,000 meaning the market performed worse than almost all economists surveyed by Bloomberg had expected.
All four major regions across the US saw sales fall in May, with prices also ticking marginally lower. The median sale price of a new home last month was $417,400, down 0.9% from the same time last year, while new listings were up.
There were 481,000 available homes on the market in May, data showed, even as many would-be sellers choose to stay in place to keep the record-low mortgage rates they secured at the height of the COVID-19 pandemic when borrowing costs were considerably below their current level.
While mortgage rates have dipped below the 7% mark in recent weeks, they remain elevated by comparison with the rock-bottom rates that prevailed during the pandemic – and with the Federal Reserve giving little indication that it’s prepared to consider an imminent rate cut, they’re expected to remain high for the foreseeable future.
First American’s deputy chief economist Odeta Kushi said buyers appeared to have reached an “inflection point” last month, with incentives from builders no longer enough on their own to counteract high mortgage rates.
Kushi said the new-home market had remained “a relative bright spot” in the housing market because of builders’ ability to offer those incentives, but “they are not immune to the impact of higher rates.”
That slight recent drop in mortgage rates, as well as a dip in the median price of new homes, should support the new-home market, she added – with plenty of demand still at play despite the current challenging landscape.
“The housing market remains structurally undersupplied and there are plenty of potential buyers waiting on the sidelines, as long as the payment-to-paycheck calculation pencils out,” Kushi said.
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
