Sales of New Homes Sink Over 16 Percent as High Prices, Rising Mortgage Rates Weigh on Buyers

New homes under construction at a housing development in Novato, Calif., on March 23, 2022. (Justin Sullivan/Getty Images)

New home sales in the United States fell over 16 percent from March to April, well below analysts’ forecasts as rising mortgage rates and high prices discouraged buyers from taking the plunge.

New home sales tumbled 16.6 percent to a seasonally adjusted annual rate of 591,000 units last month, the lowest level since April 2020, the peak of the pandemic lockdowns, according to data released by the Commerce Department on May 24.

The 16-plus percent plunge was sharply lower than analysts expected, with consensus forecasts predicting a far more modest 3.4-percent drop.

In the 12 months through April, new home sales fell 26.9 percent, the Commerce Department data also showed.

Rick Palacios, Director of Research at John Burns Real Estate Consulting, said in a tweet Monday that builders surveyed by the firm said April sales had fallen around 25 percent year-over-year, which is close to Tuesday’s Commerce Department number.

April’s decline marks the fourth straight month of falling new home sales, the longest streak since 2010. Despite falling sales, house prices have continued their skyward vault. The median new home sales price jumped in April to $450,600, around 20 percent more than a year ago and a new record high.

The most recent S&P CoreLogic Case-Shiller national home price index (pdf), a broader measure than the Commerce Department data, showed home prices climbing 19.8 percent in February year-over-year, the third-highest reading in the 35-year history of the data series.

While home prices have been buoyed by tight inventories, experts say rising mortgage rates and high inflation are likely to lead to some market cooling.

“The macroeconomic environment is evolving rapidly and may not support extraordinary home price growth for much longer,” Craig Lazzara, managing director at S&P DJI, said in a statement. “The post-COVID resumption of general economic activity has stoked inflation, and the Federal Reserve has begun to increase interest rates in response. We may soon begin to see the impact of increasing mortgage rates on home prices.”

The rate on the benchmark 30-year fixed mortgage has shot up to over 5 percent after touching a low of less than 3 percent last fall.

The housing market is the segment of the economy most sensitive to interest rates, and new home sales—which are counted at the signing of a contract—are a leading indicator for the sector.

The dropoff in new home sales ties into other industry data that suggests some cooling in the housing market. Data last week showed sales of previously owned homes fell to a two-year low in April, while single-family building permits dropped to a seven-month low.

While housing stock has been tight, there are signs that inventories are beginning to recover, offering some hope to prospective buyers.

Mike Simonsen, co-founder and CEO of Altos Research, a real estate research and insights firm, said in a recent blog post that the available inventory of unsold single-family homes in the United States jumped 8.2 percent this week.

“Based on the fact that we’re seeing solid year-over-year inventory gains now, it’s really looking like home prices will be flat next year in 2023,” Simonsen wrote, though he cautioned that hopes for home prices to fall are likely misplaced.

“Based on this signal—I’d bet on unchanged home prices 2023 over 2022,” he said, adding, “I don’t see any signal of a home price crash.”

Tuesday’s Commerce Department data showed that, at April’s sales pace, there’s around 9.0 months worth of new home inventory on the market, up from 6.9 months in March.