A pile of lumber at a home under construction in the Cold Spring Barbera Homes subdivision in Loudonville, New York, U.S., on Wednesday, Nov. 8, 2023.
Mordant Angus | Bloomberg | fake images
Sales of new construction homes fell 4.7% in April compared to March, and fell 7.7% more than a year earlier, the U.S. Census reported Thursday.
March sales were also revised significantly downward.
Higher mortgage rates are clearly hampering sales. The monthly reading is based on signed contracts, so it reflects people who buy during the month and sign offers based on current rates.
The average 30-year fixed mortgage rate was in the high 6% range at the end of March, but then shot up to 7.5% during April, reducing affordability.
On top of that, the median price of a new home sold in April was $433,500, 4% higher than in April 2023. Part of that is due to the mix of homes for sale, which are mostly on the higher end From the market. Those buyers are not as influenced by mortgage rates, as they often use all cash.
Builders say they can't lower prices because of high costs for land, labor and materials. Large production builders have been lowering mortgage rates to help boost sales, but they can do so because of their size. Dr Horton and Toll Brothers reported strong earnings in their latest quarters, beating expectations and citing growing demand due to low supply in the resale market.
“Despite all the cheery talk from big builders (who are gaining market share), the entire new construction industry is selling new homes at a rate below the five-year average,” said Peter Boockvar, chief investment officer at Bleakley Financial Group and CNBC Contributor.
In the first quarter of 2024, 38% of the national median household income was needed to make a mortgage payment on a new median-priced single-family home, according to a new index released Thursday by the National Association of Home Builders and Wells Fargo. . Low-income families, defined as those earning only 50% of the area median income, would have to spend 77% of their income to pay for the same new home.
Prices continue to rise for both new and used homes due to lack of supply. There is very little available for sale at the lower end of the resale market. While the number of newly built homes continues to increase, up 12% year over year, new homes are priced at a premium and out of reach for low-income buyers.
“With a nationwide shortage of approximately 1.5 million homes, the lack of housing units is the leading cause of growing housing affordability challenges,” said Robert Dietz, NAHB chief economist. “Policymakers at all levels of government must enact policy changes that allow builders to build more housing, such as speeding up permit approval times, providing resources for training skilled labor, and fixing supply chains of construction materials”.
