US New Home Sales Experience a Decline in June

The housing market in the United States faced a setback in June 2023, as sales of new single-family homes fell, ending a three-month streak of gains. Despite this dip, the demand for homes remained strong, owing to a severe shortage of pre-owned properties. Data released by the US Department of Commerce on July 26 indicated this shift in the market dynamics.

On a seasonally adjusted basis, annual new home sales in the US experienced a 2.5% decline in June 2023, reaching a total of 697,000 units. While this number fell below the economists' forecast of 725,000 units, it is important to note that there was a positive year-over-year increase of 23.8% in new home sales for June. Furthermore, the figures for May 2023 were revised downward to 715,000 units, which still represented the highest level since February 2022, despite the initial report of 763,000 units.

One factor contributing to the sustained demand for new homes is the scarcity of pre-owned properties available on the market. With the number of existing homes for sale at near-historic lows, potential buyers are turning to new home construction to fulfill their housing needs. Additionally, homeowners with mortgages featuring interest rates below 5% are reluctant to put their homes up for sale. Mortgage rates for 30-year fixed loans are currently around 7.0%, according to data from the Mortgage Bankers Association (MBA).

The shortage in housing supply has also led to an increase in home prices, which had been experiencing a decline earlier in the year when higher mortgage rates posed challenges for prospective buyers. The National Association of Builders reports that there are currently few building contractors offering incentives, such as discounts, in an attempt to boost sales.

The median price for new homes in the US during June 2023 was recorded at $415,400 per unit, representing a 4.0% decline compared to the same period last year. In contrast, the overall median home price reached nearly $500,000 per unit. At the end of June, there were 432,000 new homes on the market, slightly higher than the 429,000 units in May. Based on the pace of sales in June, it would take approximately 7.4 months to sell off all the homes currently on the market, compared to 7.2 months in May.

While the housing market as a whole remains stable, the prospect of rising mortgage rates and increasing home prices may delay the recovery of the US real estate market. The US Federal Reserve (Fed) is expected to raise interest rates by 25 basis points on July 26, following a period of stable borrowing costs throughout June.

The decline in new home sales during June reflects the challenges faced by the US housing market, primarily the scarcity of pre-owned homes and the subsequent rise in prices. However, the sustained demand for new homes indicates the resilience of the housing construction sector. The market will continue to be influenced by factors such as mortgage rates and overall economic conditions, ultimately shaping the trajectory of the real estate industry.