Rising Housing Prices Bog Down Sales of Newly Built Single Family Homes Across the US

Real estate prices and rising rent have made it increasingly difficult for young people to find affordable housing, and owning property is becoming a distant dream for this generation. Sales of newly built single-family houses in the United States fell short of expectations in April 2024, according to the Census Bureau and Department of Housing and Urban Development. After posting a higher-than-expected gain in March, the spring housing market has taken a downward turn as home sales fell 4.7% in April.

As per the report, in April, newly built single-family houses sold at a seasonally adjusted annual rate of 634,000, which is 7.7% below the April 2023 figure. This was also down from the revised 665,000 figure for March, and far short of the predicted number of 679,000, per U.S. News.

Why home sales are cooling off

The housing market is facing strong headwinds of high prices and high mortgage rates. The rates have hovered at 7% for a 30-year, fixed-rate loan in recent weeks, as per National Association of Realtor's report. Meanwhile, builders have offered flexibility in pricing and incentives such as free upgrades and mortgage buydowns to facilitate sales. 

Despite this, uncertainty over interest rates and worries about a slowing economy have led to the softening of the housing market as the spring buying season approaches its peak. In April, new home sales fell nearly 21% in the Northeast while the sales were down modestly in the South and West and only up in the Midwest by 10%, per the report. 

On the other hand, the National Association of Realtors reported that April sales of existing homes fell 1.9% while prices continued to rise, up 5.7% from a year ago, indicating turbulence across the entire housing market. “As the inventory of existing homes has increased, homebuyers have choices, and demand for new construction has cooled slightly,” said Lisa Sturtevant, chief economist at Bright MLS in the US News report.

The expert suggested that the inventory of unsold new construction can also be building up as at the end of April, the new home inventory was 12.1% higher than a year ago. The number also indicated the largest year-over-year supply gain since December 2022. 

Impact of interest rates and outlook for 2024

At the end of 2023, experts suggested that home sales could hit new record highs in 2024. However, in February, the sales unexpectedly fell after mortgage rates increased during the month, amid a chronic shortage of previously owned houses on the market, as per Reuters. Thus, builders ramped up construction and the supply of new homes was on the rise. Coming to March and April, the Federal Reserve is keeping interest rates high, which is in turn pushing mortgage rates. According to the minutes of the central bank’s May meeting released on Wednesday, officials remain concerned about the persistence of inflation, thus, the markets don’t expect the Fed to lower interest rates anytime before September.  

While for February, the median price of a new house was historically low, in April it rose to $433,500 up from the $430,700 level posted in March. As per the NAR, all four U.S. regions registered a surge in prices in the month of April, suggesting an upward trend for the year.