Since May, the housing market has experienced a dramatic decline in new home sales. That caused the supply of homes to grow to its highest level in three years. In May, the new homes sold had a median price of $426,600. That’s up 3% from last year at this time. The seasonally adjusted annual rate of new single-family homes sold decreased by 13.7% from April. This amounted to 623,000 units sold on a seasonally adjusted annualized basis.
This represented a 6.3% decrease from May 2024. It is well short of the six-month average of 671,000 and the one-year average of 676,000. Even more concerning, the current sales total is well below the pre-pandemic norm of 685,000 units sold monthly in 2019. With the number of homes sold in August, the market has a 9.8-month supply at today’s sales pace. This supply is 15% greater than the inventory on hand last May.
This decrease is evident in the effect of growing mortgage interest rates, which partially explain the exceptional increase in supply. In mid-May, the highest the average rate on a 30-year fixed mortgage had risen to was 6.83%. It then rose again relatively quickly to just over 7% before coming back down to 6.95% by the end of the month. These increasing rates have only served to lower consumer confidence and exacerbate affordability problems in the housing market.
Still, Stuart Miller, Lennar’s co-CEO, pointed to a “fragile” overall economy as a big factor hampering home sales.
“The macro economy remains challenging, as mortgage interest rates have remained higher while consumer confidence has been challenged by a wide range of uncertainties, both domestic and global,” – Stuart Miller, co-CEO of Lennar.
Miller painted a stark picture of the resulting decline in actionable demand in our housing ecosystem.
“Across the housing landscape, actionable demand has been diminished by both affordability and consumer confidence, and therefore has continued to soften,” – Stuart Miller, co-CEO of Lennar.
Industry insiders took notice when new home sales for the month of May plummeted an astonishing 30%. This drop negates any gains realized in the last few months’ reports.
“The large fall in new home sales in May cancels out all of the positivity of the past couple of months and serves as a valuable reminder that buyer activity can only rise so far with mortgage rates hugging 7%,” – Bradley Saunders.
The overall housing market is in serious trouble these days. It will be fascinating to see how these dynamics play out over the next several months.