New Home Sales Plunged In May - The Mortgage Note

New home sales tanked last month, falling to their slowest pace since November.

That’s according to data from the U.S. Census Bureau and the Department of Housing and Urban Development, which reported sales plunging by 11.3% to a seasonally adjusted annual rate of 619,000 in May, down from the month priors’ revised rate of 698,000.

Sales were 16.5% below the May 2023 estimate of 741,000.

At the end of the month, 481,000 new homes were for sale, an improvement. At the current sales rate, this represents a 9.3-month supply.

The median sales price of new houses sold in May 2024 was $417,400, while the average was $520,000. However, new construction has seen a spike which should help cool prices.

Americans soured on homebuying last month as rates hovered around the 7% mark and home prices continued to climb. Existing home sales were also down in May despite inventory increases.

How buyers will react in the coming months is unclear, however. Economists at Fannie Mae have noted a “general upward recalibration in mortgage rate expectations” as we move further away from the ultra-low rates of the pandemic.

Rates have trended down in the last few weeks, though they remain in the high 6%s. Both buyers and sellers may find slightly cooler rates more palatable and decide to take advantage of increasing inventory.

But while current homeowners have incentives to enter the market, first-timers may still be deterred.

“Home prices reaching new highs are creating a wider divide between those owning properties and those who wish to be first-time buyers,” NAR Chief Economist Lawrence Yun recently commented.

“The mortgage payment for a typical home today is more than double that of homes purchased before 2020. Still, first-time buyers in the market understand the long-term benefits of owning.”

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