Sales of new single-family homes experienced a sharp decline of 13.7% in May, falling to an annualized rate of 623,000 units, as reported by the U.S. Census Bureau.
This figure not only marks a 6.3% decrease from May 2024, but it also falls significantly below recent trends, including the six-month average of 671,000 and the year-long average of 676,000. Notably, sales figures are considerably lower than the pre-pandemic average of 685,000 units recorded in 2019.
Wall Street analysts had projected new home sales for May to reach approximately 695,000, as per estimates from Dow Jones.
These sales numbers reflect signed contracts, indicating that potential buyers were active during May, although mortgage rates remained persistently high.
At the beginning of May, the average interest rate for a 30-year fixed mortgage was 6.83%. This rate steadily climbed to over 7% before settling down to 6.95% by month’s end, according to Mortgage News Daily.
Bradley Saunders, an economist with Capital Economics, remarked, “The significant drop in new home sales for May negates the optimism of previous months, highlighting that while buyer activity may increase, it struggles to sustain momentum with mortgage rates close to 7%.”
Home builders that recently reported quarterly results indicated that elevated mortgage rates have adversely affected housing affordability.
On a call with analysts following Lennar’s second-quarter earnings announcement, co-CEO Stuart Miller stated, “The broader economy continues to present challenges, with mortgage rates remaining elevated and consumer confidence shaken by various uncertainties, both at home and abroad. The demand in the housing sector has been hampered by issues related to affordability and consumer trust, resulting in a consistent softening.”
While Lennar reported reductions in home prices, KB Home adopted a different approach by increasing its prices in its latest quarterly earnings report.
According to the Census report, the median price of a new home sold in May was $426,600, representing a 3% increase compared to the previous year.
The decrease in home sales has led to an increase in inventory levels. By the end of May, there were 507,000 new homes available for sale, translating to a supply of 9.8 months based on current sales trends. This inventory level is 15% higher than that observed in May 2024.
The last period with such a high supply occurred briefly during the summer of 2022, following the Federal Reserve’s initial interest rate hikes post-pandemic. Prior to that, inventory levels were last seen at these highs during 2009 amidst the subprime mortgage crisis and the Great Recession.
