New-Home Sales in April See Biggest Monthly Drop

Since 2013
wsj.com/articles/new-home-sales-in-april-see-biggest-monthly-drop-since-2013-11653414252

May 24, 2022

New-home sales make up more than 10% of all U.S. home sales.
Sales of newly built homes in April posted their biggest drop in nine years,
the latest sign that higher interest rates are reducing buyer demand.

New-home sales fell 16.6% in April from March to a seasonally adjusted

annual rate of 591,000, the lowest level since April 2020, the Commerce
Department said Tuesday.

Rising mortgage-interest rates have made homeownership more expensive

for buyers. The average rate on a 30-year fixed-rate mortgage was 5.25%
last week, up from 3.1% at the start of the year, according to Freddie Mac.

The 16.6% decline was the biggest monthly drop since 2013.
‘‘The entry-level consumer, which is the largest buyer group, is moving to the sidelines

— Margaret Whelan, CEO of Whelan Advisory

“The entry-level consumer, which is the largest buyer group, is moving to

the sidelines,” said Margaret Whelan, chief executive of Whelan Advisory,
a boutique investment bank for the housing industry.

New-home sales, which make up more than 10% of all U.S. home sales, are
tracked when contracts are signed, while existing-home sales are tracked
when contracts close. That makes new-home sales a leading indicator of
where the market is headed.

“I’m very certain it’s going to continue,” said John Burns, CEO of John
Burns Real Estate Consulting, referring to declining numbers of new-home
sales.

Economists surveyed by The Wall Street Journal had expected a 1.7%

monthly decline in new-home sales.

New-home sales are volatile and often subject to revision. But their drop
last month follows other signs that record-high home prices, limited
inventory and rising mortgage rates are cooling the housing market.

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Existing-home sales have fallen for three straight months, with April sales
hitting the lowest seasonally adjusted annualized rate since June 2020,
while mortgage applications to purchase homes fell sharply on a seasonally
adjusted basis in the second week of May.

With the average 30-year mortgage rate rising to 5%, home ownership may now
be out of reach for millions more Americans. WSJ’s Dion Rabouin explains the
impact for potential buyers, sellers and the housing market. Illustration: Adele
Morgan

Home builder stocks slid in response to the new-home sales figures. D.R.
Horton Inc. shares traded down 3% at $65.43 as of early afternoon
Tuesday, and Lennar Corp. shares fell 3.9% to $71.24.

While higher mortgage rates have started to reduce buyer demand, home
prices remain sky high as demand continues to exceed supply. The level of
existing homes for sale is unusually low, pushing buyers into bidding wars.

The median new-home sales price rose to $450,600 in April, up 19.6%

from a year earlier, the Commerce Department said.

Builders have helped shoppers lock in mortgage-interest rates in recent

months, but their wait lists of prospective buyers have been shrinking, Mr.
Burns said.

Mr. Burns said he expects new-home prices to decline in areas with ample
new-home supply, especially in Texas. “Once the builders have a lot of
finished unsold homes, and probably before then, they’re going to start
discounting,” he said.

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