Market for newly built homes slows as elevated mortgage rates put off many home shoppers
Market for newly built homes slows as elevated mortgage rates put off many home shoppers
Homebuilders who bucked the worst of last year's housing slump may be seeing their luck run out
ByALEX VEIGA AP business writer
June 27, 2024, 3:13 PM
LOS ANGELES -- Homebuilders who bucked the worst of last year’s housing slump may be seeing their luck run out.
After showing signs of strengthening early this year, sales of new U.S. homes fell in April and May from a year earlier by 7.7% and 16.5%, respectively.
Last month's sales skidded to a seasonally adjusted annual rate of 619,000 units, the slowest pace since November, the U.S. Census Bureau reported Wednesday.
The average rate on a 30-year mortgage has mostly hovered around 7% this year, according to mortgage buyer Freddie Mac. The elevated rates have discouraged many home shoppers. Sales of previously occupied U.S. homes, which make up by far the largest swath of the housing market, fell in May for the third month in a row.
The recent slowdown in new home sales marks a shift from last year, when sales rose nationally for the first time in two years, climbing 4.2% from a year earlier. By comparison, sales of previously occupied U.S. homes sank roughly 19% to a nearly 30-year low.
As last year, homebuilders have lowered prices and offered incentives like paying to lower the rate on home loans in hopes of mitigating the impact of elevated mortgage rates.
Homebuilders such as Miami-based Lennar and Los Angeles-based KB Home have increasingly relied on such financial incentives to woo buyers this year as mortgage rates have remained elevated. They helped drive a 19% year-over-year increase in Lennar’s new home orders rose in the March-May quarter. KB Home posted a 2% increase in the same period
“But for some homebuyers, those financial incentives are no longer enough to get them on the building lot,” said Lisa Sturtevant, chief economist at Bright MLS.
This spring’s ramp-up in mortgage rates, which limits homebuying budgets, and the lingering uncertainty over when rates may come down, have put off many home shoppers.
Still, these trends favor those who can afford to finance a home purchase at current mortgage rates or pay all cash.
For one, there are more new homes available. The available inventory at the end of last month amounted to a 9.3-month supply, going by the current sales pace. That’s the highest months’ supply of new homes for sale since October 2022.
Builders are also slowing the pace of new home construction. Single-family housing starts declined in May for the third straight month to the slowest pace since October.
Another plus for homebuyers: Easing home prices. The median sale price of a new home fell 0.9% in May from a year earlier to $417,400.
“With more housing inventory and softening demand, expect the third quarter of 2024 to be a slower new housing market than the second half of 2023,” Sturtevant said.