New home sales across the United States were lower than expected last month after the slump in April, according to data released today by the Census Bureau.
Sales of newly built single-family homes in May exceeded the April revised total of 629,000, which fell 16.6% month-on-month to the lowest level since April 2020, by 10.7 points. And potential buyers.
New home sales in May are still 5.9% below the May 2021 estimate of 740,000.
Why is new home sales stagnant?
The combination of rising mortgage rates, inventory restrictions, rising inflation and record highs in home prices (34% higher than two years ago) is pushing first-time buyers out of the market.
Buying a home is not just affordable for many at this time.
Mortgage rates are the highest The level since 2008 after the average 30-year rate on June 14 rose from 3.1% to 6.28%.
The rise in the Federal Reserve’s key interest rates amid rising consumer prices has significantly increased borrowing, put pressure on housing costs and further slowed spending.
Home prices also keep many homes out of the reach of buyers. The average selling price for new homes sold in May 2022 was $ 449,000. The average selling price for the month was $ 511,400.
The global cost of living crisis is also having a serious impact on consumer wallets, further hampering the opportunity to buy a new home.
Is there a housing market clash?
A sharp drop in demand could slow the housing market significantly, and some analysts and observers could discuss the bursting of the bubble and even the market crash.
Mark Zandi, chief economist at Moody’s Analytics, said he hopes for a national revision of “coast-to-coast” at the bipartisan housing policy summit in Washington, DC this week.
In recent years, homebuyers have flocked to the market, fascinated by the attractive mortgage rates during a pandemic. Prices soared as buyers competed for a limited number of homes for sale as markets and new homes took longer to recover from the global financial crisis.
Homebuilders who manage rising construction costs and a continuing decline in buyer demand are losing confidence in whether it’s worth building a new home. This can cause a supply shortage in the market.
The crash is the worst-case scenario that can arise from the current situation, and many economists suspect that the housing market is set to a crash similar to the infamous one of 2008. , When applicants could still get a “no document loan” and they were much more likely to default.
Zillow economist Nicole Bachaud told Forbes that “financing standards have become stricter and new mortgage credit scores are on average much higher than in the early 2000s.”
“Much more likely is that home prices aren’t as fast as they are today, but the pace of price increases that continue to rise will gradually slow down,” Basho added.
Homeowners and lenders are also in a much stronger position than they used to be, with higher home prices and better home equity. Both are unlikely to panic with the current deceleration.
Another potential consequence is that the housing market will “correct” itself more gently and adapt to the decline in demand due to the chilling house prices. This will allow first-time buyers (currently the largest group of people who buy homes, primarily millennials) to start buying homes again.
“Mortgage rates have risen dramatically in recent months, and historically such a major move has ended with a slowdown in housing,” Fannie Mae’s chief economist, Doug Duncan, said in a statement. Said.
Jacob Channel, senior economist at Lending Tree, told the New York Post that interest rate spikes have begun to cool into the already hot housing market over the past few years.
“This current” fix “is neither unexpected nor necessarily bad. Especially when looking for a home, it gives some buyers a little more room, “says Channel.