Sales of new homes have tumbled to the lowest level since January 2016 amid declines across the entire housing sector.
New home sales in July plummeted from the month before, dropping a whopping 12.6% last month to a seasonally adjusted annual rate of 511,000, according to a Tuesday report from the Census Bureau. The reading speaks to just how forcefully the Federal Reserve’s interest rate hiking is affecting the economy.
STRING OF BAD REPORTS SHOWS HOUSING SECTOR GETTING ROCKED INTO ‘RECESSION’
Many economists fear that new home sales, which have declined precipitously from a peak of more than a million in 2020, could be a sign the country is on the verge of a recession.
“The most rates-sensitive sector of the economy has taken it on the chin as the Fed’s aggressive tightening has taken the wind out of the housing market’s sails,” said Chris Rupkey, chief economist at FWDBONDS. “Net, net, the market for new homes is in recession — that’s a fact. Prices on new homes look toppy, but there is no definitive downtrend yet, even as new homes sales crater.”
The median sales price for a new home was $439,400 in July, an increase from the month before.
The news comes after sales of existing homes plunged 5.9% in July, a sixth straight month of declines, according to a report last week from the National Association of Realtors. Existing home sales are down a hefty 20.2% from a year ago and have accelerated in recent months.
Last week, the National Association of Home Builders announced that builder confidence in the market for newly built single-family homes plunged 6 points this month to fall into negative territory for the first time since a brief period at the start of the pandemic.
“Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession,” NAHB Chief Economist Robert Dietz said. “The total volume of single-family starts will post a decline in 2022, the first such decrease since 2011.”
The Federal Reserve has been on its most aggressive tightening cycle in recent history. As inflation has continued to be historically high, the central bank’s monetary policy has become increasingly hawkish.
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As a result of the hiking, mortgage rates have soared. At the end of 2021, the average 30-year fixed-rate mortgage was hovering around 3%. As of this week, it was 5.13%, up more than 2.6 percentage points from a year before, according to Freddie Mac.
Home prices, which have risen rapidly since the pandemic, recently notched their first month-over-month decline since January, a sign that the Fed’s action is beginning to drive down towering housing prices.
