New home sales fall short

New home sales fell 2.5% in June after being revised lower in May, ending the three-month sales growth streak. Sales are captured at the contract signing and reflect more real-time housing market activity. Losses were concentrated in the Midwest and West. Compared to a year ago, sales were 23.8% higher.

All regions except for the Midwest saw stronger sales from a year ago. The South, the largest housing market, saw home sales grow 4.3% in the month and 21.4% from a year ago. Builders have seen especially strong demand in the Southeast, where net in-migration has exploded. Texas and Florida have led the pack. 

Newly built homes have been making up a larger share of the listings on the market, as tight inventory in the resale market brings a demand boost to builders. The divergence between activity in the newly built and the resale markets has been pronounced over the last few months. Builders have been responding to changing market conditions with better incentives for potential buyers; mortgage rate buydowns have been popular. The median price of a newly built home was $415,400 in June, $17,000 lower than a year ago. 

Separately, existing home sales, which are recorded at the contract closing, fell 3.3% in June to the lowest level since January. Sales are now 19% below year-ago levels. Tight inventory remains the culprit, as active listings in the resale market are still about half of what they were in 2019. A mortgage winter is keeping homeowners from listing their houses and searching for new ones. They do not want to release their sub-4% mortgage rate for a higher rate if they don’t have to. 

Existing sales reflect activity from a few months prior when rates were inching toward 7% by the end of May. With the 30-year mortgage rate above 7% in June and early July, the expectation is for July and August sales to remain soft. 

Mortgage payments as a share of disposable personal income remain close to the lows seen when the pandemic first hit; this underscores the popularity of the fixed rate mortgage. With consumer balance sheets in much healthier shape than prior to the housing bust, we do not expect a wave of supply coming on line from any potential foreclosures.