Sales of new homes declined in June, showing that the housing market is still feeling the weight of higher mortgage rates despite signs of life in recent months.
New home sales in June fell 2.5% to a seasonally adjusted annual rate of 697,000, according to a report Tuesday from the Census Bureau. The reading comes amid persistently higher mortgage rates, which are dampening the market to some extent. Still, though, sales were 23.8% higher than in June 2022.
“In a break with the recent pattern, new home sales surprised to the downside in June and sales for prior months were revised lower,” Oxford Economics wrote in a note on the release. “We expect new home sales to soften further as the economy enters a recession and the labor market softens.”
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Mortgage rates are much higher now than they were a year ago because the Federal Reserve has been hiking rates consistently since March 2022. Mortgage rates to lock in the purchase of a new or existing home are now about double what they were right before the Fed started raising rates — making homes increasingly unaffordable.
As of Tuesday, the average rate on a 30-year fixed-rate mortgage was 6.78%, down from a recent peak of nearly 7% earlier this month, according to Freddie Mac. But that number is up from a recent low of just under 6.1% registered in late January and early February. The rate on an average 15-year, fixed-rate mortgage was 6.06%.
The median sales price for a new home was $415,400 in May, a slight decrease from the month before.
Wednesday’s report further muddles the housing picture.
May’s new home sales data surprised economists because it showed a leap in sales, although those numbers were later revised down. Some analysts had concluded that new home sales were rising because mortgage rates have increased so much, owners of existing homes who have mortgages with rates locked in before 2022 are shying away from selling because they want to keep their historically low rates.
That means less existing home inventory on the market, making new homes more of a hot commodity.
But the June report indicating declining sales, while not by an excessive degree, somewhat undercuts that notion and shows just how complicated the country’s housing picture is right now.
Existing home sales fell by 3.3% in June to a seasonally adjusted annual rate of 4.16 million, according to a report by the National Association of Realtors released last week.
More broadly, there has been some recent good news for the overall health of the economy and news that bodes well for the Fed’s tightening cycle. Two separate recent reports showed inflation is falling faster than economists had expected, raising hopes the economy will avoid falling into a recession amid the rate hikes.
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The Fed is meeting on Tuesday and Wednesday of this week and is widely expected to raise interest rates again by a quarter of a percentage point. While the central bank signaled a month ago that it might hike rates two more times, most investors expect this week’s increase to be the terminal hike.
The Fed’s interest rate target will sit at a target range of 5.25% to 5.50% if the Fed decides to hike again on Wednesday.
