Amid a rebound for some, US housing sales declined notably in April and May compared to the previous year. High mortgage rates are detering homebuyers, contributing to a third consecutive monthly drop in existing home sales by May. Builders responded by slowing new construction, especially of single-family homes and home prices saw a slight dip, with median new home prices going down in May. Despite financial incentives, uncertainty over mortgage rates led to buyer hesitancy. Cash buyers or those unaffected by rates faced less competition. Lisa Sturtevant forecasts a sluggish third quarter due to increased housing inventory and reduced demand.
Homebuilders who avoided the worst of last year's housing downturn might now be facing a change in fortune. Despite showing signs of improvement earlier this year, sales of US homes decreased in April and May by 7.7% and 16.5% respectively, compared to figures from the previous year.
According to the US Census Bureau, the number of units sold last month decreased significantly. When adjusted for seasonal variations, the sales rate was 6,19,000 units per year. This figure represents the lowest sales pace observed since November, indicating a noticeable slowdown in sales activity.
According to mortgage buyer Freddie Mac, the average interest rate for a 30-year mortgage has been around 7% this year. These high rates have made borrowing more expensive, causing many potential home buyers to reconsider or delay purchasing homes. As a result, the sales of existing homes, which constitute the majority of the U.S. housing market, have declined for the third consecutive month as of May.
As compared to the previous year, when sales increased nationally by 4.2%, the downturn trend this year presents a drastic change. Sales of existing U.S. homes dropped by about 19%, reaching their lowest point in nearly 30 years. To counter the effect of increased mortgage rates, home owners and builders are offering incentives such as reduced prices or lower home loan rates.
As mortgage rates show no sign of decreasing, homebuilders are leveraging financial incentives to entice buyers. Los Angeles based builder KB Homes and Miami based builder Lennar have shown a 2% increase and a 19% year-over-year increase respectively in the previous quarter. However, chief economist at Bright MLS, Lisa Sturtevant, expressed her concern that these financial incentives are no longer enough to attract homebuyers towards new purchases.
The increase in mortgage rates this spring has reduced the amount of money potential buyers can afford to spend on homes, making it more difficult for them to purchase. Additionally, the uncertainty about when mortgage rates might decrease has caused many people to delay their home buying plans. This combination of higher costs and unpredictability has deterred numerous homebuyers.
These trends benefit individuals who either have the financial means to handle the current high mortgage rates or can buy a home directly with cash. Since they are not deterred by the increased borrowing costs, they face less competition from other buyers who are more sensitive to interest rate changes. At the end of last month, the number of new homes available for sale increased, equating to a 9.3-month supply based on the current sales pace. This level of inventory is the highest seen since October 2022, indicating a significant increase in the availability of new homes.
Builders are reducing the rate at which they start new home construction projects. In May, the number of new single-family homes being built fell for the third consecutive month, reaching the lowest level since October. Another advantage for homebuyers is that home prices are becoming more affordable. In May, the median sale price of a new home decreased by 0.9% compared to last year, bringing the price down to USD 417,400.
Sturtevant highlighted that with increasing housing inventory and reduced demand, the new housing market in the third quarter of 2024 is expected to be less active than it was in the second half of 2023.
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