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As mortgage rates and home prices soar higher, sales of newly built single-family homes are dropping in response. Builders say affordability issues are to blame.
New-home sales fell 8.6% in March to a seasonally adjusted annual rate of 763,000 units, the Commerce Department reported on Tuesday. Sales fell in all four major regions of the U.S. last month. Overall, sales are down nearly 13% compared to a year ago.
“Buyers are facing sticker shock due to deteriorating affordability conditions and a lack of existing home inventory,” says Danushka Nanayakkara-Skillington, assistant vice president of forecasting and analysis at the National Association of Home Builders. “Only 14% of new-home sales in March were priced below $300,000. A year ago, it was 34%.”
The median sales price in March for a new home was $436,700, up more than 21% compared to a year ago. Builders cited higher development costs and materials for the price jumps.
Home prices are expected to remain high. Strong new-home price growth will likely continue through this year and into 2023, builders note.
Mixed with the higher prices, buyers are facing higher mortgage rates too. The 30-year fixed-rate mortgage averaged 5.11% during the week ending April 21, the highest in more than a decade, according to Freddie Mac.
“Growing affordability challenges are slowing new-home sales and taking a toll on the housing market,” says Jerry Konter, the NAHB’s chairman. “Mortgage rates jumped nearly a full percentage point between the end of February and March, and builders continue to face escalating construction and development costs, which are putting upward pressure on new-home prices.”
New single-family home inventory was up 52.4% in March compared to a year ago. However, just 35,000 of the homes are completed and ready to occupy. Homes under construction made up 65.5% of the inventory, with homes yet to be built comprising about 26% of that.
A backlog of homes approved for construction and yet to be started is at an all-time high, Reuters reports. Builders continue to grapple with shortages and higher prices for common material items like lumber for framing, garage doors, countertops, appliances, and more.
The prices of goods used in residential construction continued to rise in March and are up 8% since the start of 2022, according to a recent NAHB analysis. Year over year, building material prices have increased 20.4% and have risen 33% since the beginning of the pandemic.