New home buyers are being deterred by higher prices, and that became readily apparent in April with a big slump in sales numbers for homes.
Sales of new, single-family homes dropped by 16.6% in April, falling to their weakest pace in two years, according to data from the Department of Housing and Urban Development and the U.S. Census Bureau published this week.
Builders say that rising mortgage rates are making new homes less affordable to buyers.
New-home sales are down nearly 27% compared to a year earlier, the report showed.
“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,” explained Jerry Konter, chairman of the National Association of Home Builders. “Higher construction costs fueled by rising material prices and supply-side constraints along with limited existing home inventory are pricing many potential home buyers out of the market.”
The entry-level market is experiencing the largest drops in sales, as affordability conditions particularly worsen there, builders say. A year ago, 25% of new-home sales were priced below $300,000. In April, just 10% of homes were under $300,000.
The median price of a newly built, single-family home rose 19.7% year over year. The median sales price increased to $450,600 in April. Builders said the higher costs are primarily due to surging building materials costs.
“The combination of higher prices and increased interest rates are generating a notable slowing of the housing market,” said Robert Dietz, NAHB’s chief economist. “While the nation needs additional housing, home sales are slackening as tightening monetary policy continues to put upward pressure on mortgage rates and supply chain disruptions raise construction costs.”
On a year-to-date basis, new home sales only posted an increase in the Northeast last month with a 6.5% increase. New home sales were down on a year-to-date basis by 16.8% in the Midwest, 19.3% in the South, and by 0.6% in the West.