Getty Images
The numbers: Sales of newly built homes in the U.S. plunged in May, as home buyers scaled back in the face of high mortgage rates.
New-home sales were at their lowest level since November.
Sales of newly built homes fell 11.3% to an annual rate of 619,000 in May, from a revised rate of 698,000 in the previous month, the Commerce Department said Wednesday.
The number, which is seasonally adjusted, refers to how many homes would be built over an entire year if builders continue at the same pace every month.
The pace fell short of expectations on Wall Street. Economists surveyed by Dow Jones Newswires and the Wall Street Journal expected new-home sales to increase to 640,000.
The rate of new-home sales was led by a steep drop of 44% in the Northeast.
The data from April was revised significantly. New-home sales were revised to a 698,000 pace from an initial reading of 634,000.
The new-home-sales data are volatile month over month, and are often revised.
Key details: The median sales price of a new home sold in May fell to $417,400 from $417,900 in the previous month.
The supply of new homes for sale rose to 14.8% between April and May. New-home inventory in May was at the highest level since October 2022.
New-home sales posted the biggest drop in the Northeast, followed by the South, the Midwest, and the West.
Overall, sales of new homes are down 16.5% compared with the previous year.
Big picture: Home builders are not immune to the toll of high mortgage rates and rising home prices. Builders had recently expressed that they were feeling less confident about the outlook for sales due to elevated mortgage rates, as seen in a recent survey by the National Association of Home Builders. Sentiment fell to the lowest level since December.
Builders are also grappling with a record number of units under construction, which is leading them to reduce prices to entice home buyers.
What are they saying? “Mortgage rates near 7% and record high home prices in many markets have created affordability challenges for many would-be buyers,” Lisa Sturtevant, chief economist at Bright MLS, said in a statement.
With inventory rising across new and existing homes, “buyers that remain in the market are starting to have more leverage, and sellers of existing homes are increasingly offering concessions, including help with closing costs and money toward repairs,” she added.
“The number of completed new homes on the market increased again in May to 96K, the highest reading since early 2010, i.e., back in the throes of the Housing Bust,” Stephen Stanley, chief economist at Santander Capital Markets, wrote in a note.
“In light of these results, it is not surprising that housing starts in May were relatively soft,” he added. “I would expect builders to slack off noticeably on new building going forward, as the pipeline of new-home inventories is getting bloated.”
Market reaction: Most major home-builder stocks, such as D.R. Horton, KB Home, Lennar, and Toll Brothers, were down in early trading Wednesday. The yield on the 10-year note was over 4.3%.
MarketWatch, the place where you can find the latest stock market, financial and business news. Cryptocurrency is trending now, get the latest info on Bitcoin, Ethereum, and XRP.