MReport June 2022

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54 | M REPORT O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST DATA New-Home Sales Continue Downward Trajectory The price of new home sales experienced a near 17% decline in April, hitting its lowest level in two years. F acing headwinds such as higher rates, insufficient inventory, or overall affordability challenges, the nation's new residential sales dropped 16.6% month over month for the month of April 2022, ac- cording to the latest data from the U.S. Census Bureau and the U.S. Department of Housing & Urban Development (HUD). A new home sale takes place when a sales contract is signed or a deposit is accepted, regardless of the stage of construction. "New homes sales dropped for the fourth consecutive month in April, to the lowest level in two years, closing in on the quar- antine-low of April 2020," said George Ratiu, Senior Economist and Manager of Economic Research at "High construction costs and surging mortgage rates are keeping many buyers away this spring. A total of only 591,000 homes sold during the month, a 16.6% decline from a downwardly revised March figure, driven by declines in all major regions of the country." Year over year in April 2022, new home sales dropped 26.9% below April 2021's estimate of 809,000. HUD and the Census Bureau reported the median sales price of new homes sold in April 2022 was $450,600, with the average sales price weighing in at consid- erably more at $570,300. Prices climbed as the nation's home builders continued to strug- gle, as the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) found builder confidence in the market for newly built single-family homes on the decline in May, marking the fifth consecutive month that builder sentiment dipped, reaching its lowest point since June 2020. "By stage of construction, the share of completed homes sold was 27.7%, up from 26.2% one year ago, but still low compared to pre-pandemic levels. The share of homes under construc- tion sold declined significantly," First American Deputy Chief Economist Odeta Kushi added. "By stage of construction, the share of completed homes/ready- to-occupy inventory in April was 8.6%, down from 10.4% one year ago. While the share of new- home inventory that is under construction increased from 62.8% to 64.9%." HUD and the Census Bureau reported that the seasonally adjusted estimate of new homes for sale at the end of April was 444,000, repre- senting a supply of nine months at the current sales rate. "Following an increase of over 200 basis points in mortgage rates since the end of last year, signs of slowing housing activity have been building, as previ- ous reports on existing home sales, mortgage applications, and homebuilder confidence have all turned lower," said Douglas G. Duncan, Chief Economist, Fannie Mae. "However, today's new home sales report is the sharpest indicator yet, with sales coming in well below both our own and consensus expectations. While this series is volatile and therefore may rebound somewhat, the sales pace in April was similar in level to the slowdown that occurred the last time the Federal Reserve engaged in a tightening regimen in 2018. Given the faster pace of mortgage rate increases to date compared to that period, along with greatly stretched housing affordability, we expect that, compared to the 2018 period, a sharper downturn in residential investment is now underway, and we will likely be revising downward our near-term home sales forecast. Furthermore, the months' supply of new homes for sale jumped 2.1 to 9.0, the highest reading since mid-2010, suggesting a slowdown in the rapid pace of house price appreciation is likely approaching." The Federal Reserve's actions to ease inflationary concerns earlier in May, by increasing the interest rate by 50 basis points to 0.75%-1.00%, has sent mortgage rates steadily trending upward, thus creating yet another barrier to homeownership for today's buyers. "The market for new homes is mirroring broader real estate trends, as rising inflation is taking a bigger chunk out of Americans' paychecks and surging borrowing costs are compressing homebuy- ers' budgets," Ratiu noted. "With affordability on a steep decline, new homes have become a luxury for trade-up buyers with significant equity or investors with cash looking to turn them into single-family rental develop- ments. Not surprisingly, sales of entry-level homes—priced below $300,000—accounted for less than 20% of April's total new home sales, compared with 38% in 2020. While labor costs remain elevated, a lower price of materials should offer some relief to homebuilders looking to meet buyers in a real estate landscape with less money to go around, and lower affordability. For instance, the price of lumber has been on a steep decline, dropping from $1,314 per thousand board feet in early March 2022 to $667 this week." Kushi added, "Affordability is a growing challenge as higher new- home prices & rising mortgage rates are pricing out some buyers. One year ago, 25% of new-home sales were priced below $300,000. In April of this year, only 10% of new home sales were priced below $300,000."

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