New home sales take a step back in April as rates, prices hamper market

Builders increase use of discounts, incentives, but activity still drops

High home prices and high rates held back April’s new home sales, which slid more than anticipated to a seasonally adjusted annual rate of 634,000 units.

That’s a retreat of 4.7% from March, according to the U.S. Census Bureau and the Department of Housing and Urban Development. Year over year, it’s a drop of 7.7%. Economists polled by Reuters had expected a drop to an annualized pace of 670,000 units.

March’s sales pace was revised lower as well, down to 665,000 units from the initially reported 693,000.

“The last four weeks’ mortgage rates have been above 7% and this is clearly causing many potential home buyers to sit on the fence,” said Carl Harris, chairman of the National Association of Home Builders (NAHB). Coupled with an April median new-home price of $433,500 (down 1.4% month over month but up 3.9% year over year), it’s clear that affordability issues remain a major barrier to further sales progress.

Builders have recently stepped up to move product and try to keep homes affordable, with May’s Housing Market Index (HMI) report from Wells Fargo and the NAHB revealing that 25% of builders cut home prices to buttress sales. That halted four straight months of decreasing share. Additionally, 59% of builders used sales incentives to entice buyers, up from 57% one month prior.

Harris said that the NAHB expects rates to fall back below 7% in the weeks and months ahead, which should boost activity.

“Moderating rates, along with a dearth of existing inventory, should help new home sales recover as new construction will be needed to meet the demand for homes, especially during this crucial spring/summer season,” he said.

Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis, agreed, also pointing to the ongoing shortage in existing home inventory that has helped buoy the new home market.

“A lack of homes in the resale market combined with softening of the median new home price should incentivize home buyers to turn to new construction in the coming months,” Nanayakkara-Skillington said.


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