New home sales fell in July to a seasonally adjusted annual rate of 511,000, down 12.6% from June and 29.6% YOY, according to data from the U.S. Census Bureau and the Department of Housing and Urban Development.
The massive dropoff can be attributed to the rising cost of buying a home. Home price appreciation and increasing interest rates are pricing potential buyers out of the market.
Between rates and prices, the monthly mortgage payment on a typical US home is 62% higher than a year ago.
Meanwhile, some sellers are opting not to put their homes up for sale, exacerbating the stock shortage and driving up competition. About half of all homeowners have a rate under 4% and are disinclined to give it up.
The seasonally‐adjusted estimate of new houses for sale at the end of March was 464,000, representing a supply of 10.9 months at the current sales rate.
The median sales price of a new home was $439,400, while the average sales price was $546,800.
The homebuilding frenzy is beginning to slow with builders. Construction starts fell in July to the slowest pace since early 2021, while the number of canceled deals increased as buyers back away from the market.
“The decline in single-family starts is reflected in our latest builder surveys, as housing demand continues to weaken on higher interest rates while on the supply side builders continue to grapple with higher construction costs,” said Jerry Konter, chairman of the National Association of Home Builders.
“Builders are reporting weakening traffic as housing affordability declines.”
At the same time, competition is cooling and prices are slowly readjusting. More than 15% of home sellers dropped their price in July in every U.S. metro, particularly in pandemic boomtowns. Sellers who earlier this year saw their neighbors receive a cash offer within a week are being forced to reckon with their expectations.
“It’s turning into a buyer’s market,” Keith Hernandez, a real estate agent with Realty One Group Synergy, told the Los Angeles Times.