Sales of new U.S. homes fell in June for the first time in four months, suggesting that high mortgage rates and limited supply are continuing to sideline would-be buyers.
New single-family home purchases tumbled 2.5% to a seasonally adjusted annual rate of 697,000 units, the Commerce Department reported Wednesday. Economists surveyed by Refinitiv expected new home sales – which account for a small percentage of total sales – to come in at a rate of 725,000 units.
Despite the decline, sales remain up about 23.8% from a year ago.
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"With inventory of existing homes dwindling, many home shoppers are turning up empty-handed," said Nicole Bachaud, Zillow senior economist. "Those buyers who turn to the new construction market are seeing more available options to snatch up, leading to strong new home sales compared to a year ago."
At the current pace of sales, it would take roughly 7.4 months to exhaust the inventory of existing homes. Experts view a pace of six to seven months as a healthy level.
Still, the pullback in sales indicates that steep borrowing costs and elevated prices are weighing on the housing market by boxing out potential buyers. The median price for a new home fell to $415,400 from the previous year, but that is far higher than the typical pre-pandemic level.
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The Federal Reserve's aggressive interest-rate hike campaign sent mortgage rates soaring above 7% last year for the first time in nearly two decades, cooling the red-hot housing market.
Rates on the popular 30-year fixed mortgage are currently hovering around 6.78%, according to Freddie Mac, well above the 5.54% rate recorded one year ago and the pre-pandemic average of 3.9%.
With rates slow to retreat, sellers who locked in a low mortgage rate before the pandemic have been reluctant to sell and buy another house at a steeper borrowing price.
The lack of inventory has weighed on existing home sales, in particular. Sales of previously owned homes fell 3.3% in June from the previous month to an annual rate of 4.16 million units, according to data released last week by the National Association of Realtors (NAR).
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On an annual basis, existing home sales are down 18.9% when compared with June 2022.
"There are simply not enough homes for sale," said Lawrence Yun, chief economist at NAR. "The market can easily absorb a doubling of inventory."
