(Bloomberg) -- Sales of new US homes unexpectedly declined to a seven-month low in June as the mix of stubbornly high mortgage rates and prices deterred prospective buyers.
Contract signings on new single-family homes decreased 0.6% to a 617,000 annual pace, following a nearly 15% drop in May that was the largest in two years, according to government data released Wednesday. The figure was weaker than all but two estimates in a Bloomberg survey of economists.
The latest figures follow a topsy-turvy first half of the year, with sales gaining ground throughout the spring before slumping in May by the most in nearly a year. Thirty-year mortgage rates have dipped below 7% in recent weeks, but remain double what they were at the end of 2021, encouraging many builders to offer sales incentives such as buying down customers’ mortgages.
Meantime, builders have continued to add supply, with inventory edging up to 476,000 homes in June, still the most since 2008. At the current rate of sales, that inventory would last 9.3 months, the longest since October 2022.
The number of completed new homes that were for sale rose to 102,000 in June, remaining at the highest level since 2009.
Builders “were hoping for robust demand, but the rise in home prices and rebound in mortgage rates combined to torpedo affordability, and homebuying demand has deteriorated,” Stephen Stanley, chief US economist at Santander Capital Markets, said in a note. “The result is that new home inventories have backed up noticeably.”
Residential Construction
Builders will likely continue to slow the rate of new construction with supply so high, Stanley said. New construction of single-family homes has declined four straight months, the longest such stretch since 2018.
However, since inventory in the resale market remains relatively low, builders have been able to keep up the pace. Otherwise, they’d ordinarily limit production once the supply-sales ratio exceeds 7.5 months, Robert Dietz, chief economist at the National Association of Home Builders, said last week.
An elevated inventory has, however, helped keep price growth in check. In June, the median sales price of a new home was little changed from a year ago at $417,300. After rapid growth in 2021 and 2022, price changes have been relatively muted in recent months.
Despite some “choppiness” in demand throughout its recently finished third quarter, DR Horton Inc., one of the biggest US builders, reported a gross profit margin that beat analysts’ expectations. DR Horton cut its average house size by 2% over the past year in response to affordability challenges, and it’s considering boosting construction of townhouses in some markets, Chief Operating Officer Michael Murray said last week on an earnings call.
The government report showed new-home sales declined in the Midwest. Purchases fell in Northeast to the lowest level in nearly a decade, while rising slightly in the South and West.
New-home sales are seen as a more timely measurement than purchases of previously-owned homes, which are calculated when contracts close. However, the data are volatile. The government report showed 90% confidence that the change in new-home sales ranged from a 15.2% decline to a 14% gain.
--With assistance from Chris Middleton.
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