New Home Sales Collapse Under Weight of High Mortgage Rates

A sign advertising a home for sale is displayed outside of a Manhattan building on April 11, 2024 in New York City. Home sales plunged in May on the back of elevated mortgage rates.

Sales of new single-family homes plunged by more than 11 percent in May, a signal of how elevated mortgage rates and expensive prices are depressing activity in the housing market during what should be its busiest time of the year.

Last month, sales of homes came in at 619,000, according to data from the Department of Housing and Urban Development and the Census Bureau. This was down from April's sale of 698,000. Compared to May 2023, sales were down by 16.5 percent when buyers acquired 741,000 homes. The Spring season tends to be the busiest season for the housing market.

Housing experts blamed elevated mortgage rates in May for sales plunging last month. Holden Lewis, a home expert at NerdWallet, pointed out that the average 30-year fixed rate mortgage for May was above 7 percent, up by about 0.6 percent compared to the same time last year.

"New home sales plunged in May, compared to a year earlier, because mortgage rates above 7 [percent] made ownership unaffordable to many would-be buyers," Lewis told Newsweek.

Sales were down across the country. The Northeast reported a fall of nearly 44 percent of new home sales, the Midwest was down close to 9 percent, the South dropped by 12 percent and the West dropped by 4.5 percent.

The median sale price of a home fell slightly by $500 to $417,400. The average sale price was up to $520,000, about $16,000 higher than where it was in April.

One silver lining in the latest data came from the revisions that came in for February through April. They averaged 32,000 more sales per month than initially thought, a 5 percent jump. Meanwhile, for buyers, there were more homes available on the market, said Bill Adams, the chief economist at Comerica Bank.

"With fewer sales and more houses for sale, listings were equivalent to 9.3 months' supply at the current sales rate. This is the most months' supply of new homes since October 2022," he said in a note shared with Newsweek.

Adams went on to say home builders are developing smaller-sized properties which has helped lower prices for new homes.

"New home prices are falling slightly in year-over-year terms, largely reflecting homebuilders' efforts to aid affordability for buyers by economizing on floor plans," he said. "In aggregate, the market seems decently balanced, albeit with a very different mix of choices for homebuyers than have been typical over the last few decades."

The growing listing of homes bodes well for buyers, he added.

"The overhang of new home listings will likely keep a lid on house price increases in the second half of 2024," Adams pointed out. "That will make homebuying a little less unaffordable, and also contribute to cooler inflation in 2025."

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