US Department of Commerce released a report on Tuesday, April 23, showing that the sales of new single-family homes in the US rebounded from the revised lower levels in February, thanks to the continued shortage of existing homes in the market. However, the rise in mortgage rates may dampen this momentum.
The report also indicated that the median home price rose from February to its highest level in seven months, reaching $430,700. This could be due to fewer builders offering discounts, leading sales to shift towards higher-priced homes. The increasing home prices and mortgage rates may make housing affordability more challenging, especially for first-time homebuyers.
Builders are constructing smaller and more affordable homes, but the number of builders offering discounts is decreasing.
According to the survey data from the National Association of Home Builders (NAHB) last week, the percentage of builders offering discounts decreased from 24% in March and 36% in December to 22% in April. Additionally, builders providing incentives to facilitate sales are also diminishing.
Reuters quoted analysis from Oliver Allen, a senior US economist at the prominent economic consulting firm Pantheon Macroeconomics, stating, “New home sales have maintained a strong momentum recently. However, the recent increase in mortgage rates over the past few months and the decline in mortgage applications suggest that new home sales may at best stabilize in the short term, while existing home sales might decline.”
According to data jointly released by the US Census Bureau and the Department of Housing and Urban Development today, the seasonally adjusted annual rate of new single-family home sales in March was 693,000 units. This marked an 8.8% increase from the revised 637,000 units in February, and an 8.3% increase from the expected 640,000 units in March 2023.
Despite the support of a tight supply of existing homes in the new home market, the rise in mortgage rates is affecting people’s affordability.
Data from last week indicated a decrease in the housing starts and building permits for single-family homes in March. The National Association of Home Builders noted, “Buyers are hesitating until they have a better grasp of where interest rates are heading.”
Freddie Mac’s data on mortgage financing indicated that the average rate for popular 30-year fixed-rate mortgages has risen to over 7% as strong reports on the labor market and inflation suggest the Federal Reserve might delay expectations for rate cuts this year. Some economists doubt that the Fed will lower borrowing costs in 2024.
With the resale housing market supply tightening, overall housing prices continue to rise. Data from Fannie Mae last week showed a 7.4% year-over-year increase in home prices in the first quarter, compared to a 6.6% increase in the fourth quarter. Fannie Mae revised its home price growth forecast for this year from 3.2% to 4.8%.