According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, April’s annual sales pace is down 16.6% from the revised March rate of 709,000 units and 26.9%. In April, the drop in new-home sales was the fourth consecutive monthly dip and the second consecutive month with a double-digit percentage-point drop. When combined with recent reports of low single-family construction activity and persistent existing-home difficulties, April’s data fuel the fire of dwindling homebuyer desire amid rising mortgage rates, low inventory, and still-high prices.
“The volume of signed sales contracts significantly declined in April as the cost of purchasing a home increased in 2022 as interest rates surged higher,” said Jerry Konter, chairman of the National Association of Home Builders (NAHB). “Higher construction costs fueled by rising material prices and supply-side constraints and limited existing-home inventory are pricing many potential homebuyers out of the market.”
Moreover, entry-level and first-time buyers continue to bear the brunt of rising affordability. According to Wells Fargo economists, homes priced at $399,000 and below accounted for only 36% of new-home sales last month. Meanwhile, the percentage of new-home sales priced above $400,000 increased to 64%, up from 55% in March and 42% in April 2021. While sales are slowing, prices continue to rise. New-home prices increased over 20% year over year, with the median sales price reaching a new high of $450,600.
Fed Minutes Point To More Rate Hikes That Go Further Than The Market Anticipates
According to minutes from the Federal Reserve’s meeting released Wednesday, officials highlighted the need to increase interest rates fast, maybe more than markets expect, to combat a developing inflation problem. Not only did policymakers see the need to raise benchmark borrowing rates by 50 basis points, but they also predicted that comparable increases would be required at subsequent sessions. They also stated that policy might need to move beyond a “neutral” approach in which they are neither supportive nor restrictive to growth, which is an essential concern for central bankers that could have impacts across the economy.
Market expectations presently have the Fed’s policy rate at 2.5 percent to 2.75 percent by the end of the year, in line with many central bankers’ views of a neutral rate. However, statements in the minutes show that the committee is willing to go further.
Pending Home Sales Decline 3.9% In April
The National Association of Realtors® announced that pending home sales fell in April, with contract activity dropping for the sixth month. Only the Midwest area had a month-over-month increase in signings, while the other three major regions recorded declines.
The Pending Home Sales Index (PHSI), a forward-looking measure of home sales based on contract signings, fell 3.9 percent to 99.3. A 100-point index represents the degree of contract activity in 2001. Transactions were down 9.1% year over year. With mortgage rates rising, Lawrence Yun, NAR’s chief economist, forecasts existing-home sales to wane by 9% in 2022 and home price appreciation to moderate to 5% by year’s end. These higher rates might boost mortgage payments by as much as $500 per month in some situations. Such price increases are already a burden, but they become considerably more so for a family on a budget dealing with high inflation, including rising fuel and food costs, as Yun points out.
“Home prices in the meantime appear in no danger of any meaningful decline,” he continued. “There is an ongoing housing shortage, and properly listed homes are still selling swiftly – generally seeing a contract signed within a month.”
Next week’s potential market moving reports are:
- Monday, May 30th – No Report
- Tuesday, May 31st – National Home Price Index, Consumer Confidence Index
- Wednesday, June 1st – Job Openings, Quits, Construction Spending
- Thursday, June 2nd – Initial Jobless Claims, Continuing Jobless Claims, ADP Employment Report
- Friday, June 3rd – Unemployment Rate, Nonfarm Payrolls, Global U.S. Services PMI
As your mortgage and real estate professional, I am happy to assist you with any information you may need regarding mortgage or real estate trends. I welcome the opportunity to serve you in any way I possibly can. Please feel free to reach me at (800) 216-1047.