April New Home Sales Slump

May 23, 2024

Sales of newly built homes, which are recorded at the contract signing, slumped 4.7% in April after March sales were revised lower. Sales are now 7.7% below year-ago levels as higher mortgage rates suppress demand for housing. The pipeline of potential buyers remains strong as millennials, the largest generation in the workforce, age into their prime home-buying years. Builders have been able to leverage the low supply in the resale market to their benefit, but a rise in inventories in April point to a limit on how much discounting they can offer.

All regions in the country, except the Midwest, saw a sales slump in the month. The South, which has over half the share of all newly built homes sold in the country, saw sales fall 4.8% in the month and 15.1% from a year ago. Building conditions are more favorable in the South due to the availability of land and easier building regulations. However, higher costs of inputs, labor shortages, and rising interest rates make it harder on builders across the country to take advantage of the sidelined demand.

Builders’ sentiment, as measured by the National Association of Home Builders, slumped into negative territory in May. Higher interest rates are not only impacting demand for homes; builders see their margins squeezed in a higher rate environment due to their own financing needs and their offerings of mortgage rate buydowns for buyers. The “higher for longer” interest rate environment spells more subdued sales activity for housing.

Separately, existing home sales, which are recorded at the contract closing and reflect activity from a few months prior, fell 1.9% in April. Mortgage rates had started to climb again back in February, taking a bite out of demand. Mortgage rates have cooled slightly from their recent peaks in early May, but the mortgage lock-in effect is keeping many homeowners from listing their homes; about 77% of mortgage holders have a rate that is 5% or lower.

Inventory of resale homes available for sale jumped in April but remains tight compared to pre-pandemic levels. This has kept prices climbing on a year-over-year basis for ten consecutive months, with the median home price in April hitting above $400,000 for the first time since August 2023. The share of homes sold for one million dollars or more surged almost 40% compared to a year ago. All-cash purchases remain at 28% of sales, the same as last year.