Sales of new single-family homes in the United States fell 8.1 percentage points in June according to Census Bureau data, dipping hopes that the housing market could avoid an impending downturn on the same day, as new statistics reveal that consumer confidence in July also fell more than expected. .
New home sales had seen a slight increase in May after a plunge in April, when purchases of new single-family homes fell 16.6% month-on-month to their lowest level since April 2020, amid the COVID-19 pandemic. The same record is now held by June rates.
But in June, new home sales fell again to a seasonally adjusted annual rate of 590,000 from 642,000 in May. The drop from May to June was largely attributable to the West, where new home sales fell from 177,000 to 112,000.
The year-over-year data paints an even bleaker picture than the month-over-month data, with June’s new home sales rate 17.4% lower than June 2021 estimates.
“There’s no doubt that the demand environment is quite weak right now,” said Zelman & Associates director of research Dennis McGill. Newsweek.
McGill, who explained that the Census Bureau’s measure of new home sales is often more volatile than the underlying market due to their sample size and frequent revisions, said Zelman & Associates data for June also showed a significant drop in sales.
“The results of our June survey were very negative compared to demand in previous months,” McGill said. “This view that we quantified several weeks ago with the release of our survey has also been corroborated by public company results so far this earnings season. All have spoken of weaker demand in June and more buyers canceling contracts.”
He added: “And that’s a situation that deteriorated over the month and continued into July.”
The picture isn’t much different for existing homes, a category where sales fell for the fifth consecutive month in June, plunging 5.4% from the previous month, according to the National Association of Realtors (NAR). .
Home sales are falling as mortgage rates, interest rates and home prices rise across the United States, making buying new (and existing) homes unaffordable for many, especially first-time buyers. .
The median sale price for new homes sold last month was $402,400, while the average sale price was $456,800. These averages were slightly lower than those for May, when the median sale price for new homes was $449,000 and the average sale price was $511,400.
Other factors contributing to the diminishing purchasing power of potential home buyers are rising inflation and a looming cost of living crisis that is deeply affecting consumers’ wallets and eating away at their investment. The supply of homes in the housing market also remains low, despite recent positive increases.
July consumer confidence also fell to its lowest since February 2021, according to the Conference Board index released on Tuesday. The index fell to 95.7 from 98.4 in June, down for a third consecutive month.
Economist and financial commentator Peter Schiff, CEO and chief global strategist of Euro Pacific Capital, commented on the release of the two data saying “the economy is clearly in #recession”.
Is this a sign of a major downturn to come?
McGill thinks “major” is a big word, but doesn’t dispute the fact that a downturn is looming in the housing market.
“I would say that we expect to see both unit, volume and price under pressure for most of this year and into next year,” he said. Newsweek.
“The market is facing a lot of challenges. Obviously affordability is a big issue, with higher mortgage rates it’s harder for people to qualify,” he said. “And that has been compounded by the excessive appreciation in house prices over the past two years.”
Housing demand was high during the pandemic, when low mortgage rates and favorable terms encouraged purchases by first-time home buyers as well as second-home buyers and those buying properties as an investment. But now, when conditions have changed dramatically, McGill says this “tremendous amount of cyclical demand” will start “to go against the market”.
“When the primary buyer is under pressure from an affordability perspective as well as a trust perspective, and you also challenge that secondary buyer piece of the puzzle, that’s where you get the cyclical downturn in housing,” he said. Newsweek.
The housing market is essentially adjusting after a period of excess, McGill said.
“We thought a lot of the demand throughout 2020-2021 exceeded normal demographic demand,” he said. “So now we think units and prices are going to be under pressure for the next 18 months at least. And that’s just the nature of market cyclicality.”