In July, the sales of newly built single-family homes in the United States dropped to a six-month low, indicating that despite builders lowering prices and offering incentives, the increase in mortgage rates has suppressed demand, keeping potential homebuyers in a wait-and-see mode.
Data released by the U.S. Census Bureau on Tuesday, August 25, revealed that sales of new homes in the US last month, revised downwards from June, decreased by 10.5%. The seasonally adjusted annual sales rate was 607,000 units, the lowest level since January this year, and below the consensus expectation of economists. Economists surveyed by Bloomberg and Reuters had a median expectation of 620,000 units.
New home sales make up only a small portion of overall housing sales in the United States. Sales of new homes are calculated based on the number of signed contracts, unlike existing home sales which are calculated based on completed transactions, and monthly data often fluctuates significantly and is subject to substantial revisions. New home sales in July were down 6.3% compared to the same period last year.
The report released by the Census Bureau on Tuesday also showed that the median sales price for new homes in July was $393,800, a 0.9% decrease from the same period last year, the lowest level in four years.
Meanwhile, consumer confidence remains weak. The Conference Board, a nonprofit organization based in New York, released a consumer confidence report on Tuesday showing that due to heightened concerns about the job market and inflation prospects, the organization’s index measuring consumers’ assessment of current conditions dropped to 89.4 in August, below the revised downward figure of 90.2 in July, the lowest level since January this year.
High borrowing costs are a key factor contributing to the continued sluggishness in the real estate market. The report by The Conference Board also indicated that only 5.2% of consumers plan to buy a home in the next six months, down from 6.5% in July, marking the largest decline in over five years.
For the past four months, new home sales have declined in three of those months, further indicating that financing costs and rising home prices are dragging down the housing market. While builders have seen some success in boosting demand through initiatives like free upgrades, lowering mortgage rates, and price cuts, the entry-level housing market remains constrained by affordability issues.
The new home sales report released by the U.S. Census Bureau on Tuesday also revealed that the inventory of new homes for sale in July decreased by 1.6% compared to the same period last year, to 488,000 units. At the current sales pace, this equates to a 9.6-month supply. As builders aim to reduce an excess of housing inventory on the market, they also restrict the pace of new home construction.