News
Drop in sales of new homes in the US; offer in over 16 years
By Lucia Mutikani
WASHINGTON (Reuters) – Sales of new U.S. single-family homes fell to a six-month low in May as a jump in mortgage rates weighed on demand, offering further evidence that the housing market’s recovery was underway. wavering.
But the pain caused by the biggest drop in sales in more than a year and a half, reported by the Commerce Department on Wednesday, has been eased by a sharp upward revision to April data, which now shows sales are rising instead. to fall, as previously estimated. . The offer was the largest in more than 16 years.
The housing market has been the sector hardest hit by the Federal Reserve’s aggressive interest rate hikes since March 2022. However, it emerged from the crisis starting in the third quarter of last year, when an acute shortage of older homes drove the demand for New construction.
The resurgence in mortgage rates also hurt sales of previously owned homes and residential construction.
“As it stands, today’s report will be further evidence for the Fed that monetary policy is tight and it will be time to start cutting rates in the coming months,” said Richard de Chazal, macro analyst at William Blair.
New home sales fell 11.3% to a seasonally adjusted annual rate of 619,000 units last month, the lowest level since November, the Commerce Department’s Census Bureau reported. The percentage drop was the biggest since September 2022.
The sales pace for April was revised to 698,000 units, a nine-month high, from the previously reported 634,000 units.
Economists polled by Reuters had forecast new home sales, which account for 13.1% of U.S. home sales, would reach a rate of 640,000 units.
Sales of new homes are recorded at the time the contract is signed, which makes them a leading indicator of the real estate market. They, however, can be volatile from month to month. Sales fell 16.5% year-on-year in May.
Residential investment recorded double-digit growth in the first quarter, contributing to the economy’s 1.3% annualized growth rate. Goldman Sachs economists lowered their gross domestic product estimate for the second quarter to a 1.8% pace based on the data, from a rate of 1.9%.
The average rate on the popular 30-year fixed-rate mortgage hit a six-month high of 7.22% in early May before falling back to 7.03% by the end of the month, data from mortgage finance agency Freddie Mac showed.
Financial markets expect the Fed to begin cutting rates in September, although policymakers have recently adopted a more aggressive outlook. The US central bank has maintained its benchmark overnight interest rate in the range of 5.25%-5.50% since July. It has increased its policy rate by 525 basis points since March 2022.
The story continues
Stocks on Wall Street were trading higher. The dollar rose against a basket of currencies. US Treasury prices fell.
BROAD SALES DECLINE
New home sales are likely to remain weak, with a report from the Mortgage Bankers Association on Wednesday showing that home loan applications rose 1% last week on a seasonally adjusted basis from the previous week.
“New home sales may continue to be subdued until we see a more substantial decline in mortgage rates,” said Nancy Vanden Houten, chief U.S. economist at Oxford Economics. “We expect a modest rebound in sales late in the second half of this year, when we expect mortgage rates to fall more decisively below 7% once the Fed’s rate cuts begin.”
Sales plummeted 43.8% in the Northeast and fell 4.5% in the West last month. They plummeted 12.0% in the densely populated South and declined 8.6% in the Midwest, which is seen as a more affordable region.
The average price of new homes fell 0.9% to $417,400 in May from a year earlier. Nearly half of new homes sold last month were priced at less than $399,000.
A survey by the National Association of Home Builders showed last week that the share of builders who cut prices to boost sales in June was the highest in five months. Builders are building smaller homes to try to fit buyers’ budgets.
National housing prices are, however, rising steadily. The Federal Housing Finance Agency reported Tuesday that single-family home prices rose 6.3% from a year ago in April.
There were 481,000 new homes on the market at the end of May, the highest level since January 2008 and up from 474,000 units in April, the Census report showed.
At May’s sales rate, it would take 9.3 months to offset the supply of homes on the market. This was the highest number of months since November 2022 and up from 8.1 months in April. Increasing supply could improve housing affordability.
“The glut of new home listings will likely curb home price increases in the second half of 2024,” said Bill Adams, chief economist at Comerica Bank. “This will make buying a home a little less unaffordable and will also contribute to lower inflation in 2025.”
(Reporting by Lucia Mutikani; editing by Bernadette Baum, Andrea Ricci and Paul Simao)