New home sales fall to their slowest pace since November

New home sales in the US fell in May due to higher prices mortgage rates continued to challenge the housing market.

Sales of new single-family homes fell 11.3% on an annual basis last month to 619,000, the slowest since November, government data released Wednesday showed. The figure was below nearly all estimates from a Bloomberg survey of economists and reflected declines in all four major U.S. regions.

The sales pace is now at the lower end of last year’s range, indicating limited momentum in the interim a lack of affordability. Mortgage rates fell below 7% in mid-June for the first time since late March, but remain more than double the level at the end of 2021.

While high prices have turned off many buyers, an increase in inventory is adding to affordability at the margin. The average sales price of a new home fell 0.9% from a year ago to $417,400 in May. At the same time, the supply of available homes rose to 481,000, still the highest since 2008.

Major builders, including Lennar Corp. and KB Home, are trying to tackle the affordability problem by buying up customers’ mortgage rates or offering price breaks, and so far the strategy has kept the builders’ order books full. Both companies reported earnings gains in their recently completed second quarters.

Recent data shows that overall housing demand is improving this month. The Mortgage Bankers Association’s index of home purchase applications rose over the past three weeks to its highest level since early February.

Over the long term, the U.S. still faces a shortage of new housing, Lennar Chairman Stuart Miller said on an earnings call last week, citing “more than a decade of underproduction.” Meanwhile, the supply of previously owned homes remains well below pre-pandemic levels, hampered by high financing costs that have deterred sellers from putting their properties on the market.

Sales of new homes are seen as a more timely measurement than purchases of previously owned homes, which are calculated when contracts close. However, the data is volatile. The government report found that 90% believed the change in new home sales ranged from a fall of 26.8% to an increase of 4.2%.