Sales of new US single-family homes surged to more than a three-year high in April as builders lowered prices to attract buyers, but rising mortgage rates and economic uncertainty remained headwinds for the housing market.
Data for February and March was revised significantly down, taking some of the shine from the unexpected increase in sales last month reported by the Commerce Department on Friday.
“Strength in new home sales does not change our view that housing activity is weakening further in the second quarter and is likely to remain soft this year,” said Veronica Clark, an economist at Citigroup. “Still-high rates and a slowing labor market will weigh further on housing demand.”
New home sales surged 10.9% to a seasonally adjusted annual rate of 743,000 units last month, the Commerce Department’s Census Bureau said on Friday.
The sales pace for March was revised down to a rate of 670,000 units from the previously reported 724,000 units, while that for February was downgraded to 653,000 units from 674,000 units.
Economists polled by Reuters had forecast new home sales, which make up about 15.7% of US home sales, declining to a rate of 693,000 units. New home sales, which are counted at the signing of a contract, are volatile on a month-to-month basis and subject to big revisions.
They advanced 3.3% on a year-on-year basis in April. Sales last month tumbled 14.8% in the Northeast. They, however, jumped 35.5% in the Midwest and increased 11.7% in the densely populated South. Sales climbed 3.3% in the West.
Higher mortgage rates and an unsettled economic outlook amid President Trump’s aggressive trade policy and mass firings of public workers have sidelined buyers, leaving builders to cut prices and offer incentives to ease some of the squeeze on buyers from higher borrowing costs.
Builders cutting prices
The median new house price dropped 2.0% to $407,200 in April from a year earlier. Prices could moderate further as the National Association of Homebuilders reported last week that the share of builders cutting prices in May was the highest in nearly 1-1/2 years.
The bulk of homes sold in April were in the $300,000-$399,999 price range. Most of the houses were either completed or under construction.
“Builder incentives including price reductions may lend some support to sales, but we think that will be outweighed by weaker economic growth and rising mortgage rates, which are closing in on 7%,” said Nancy Vanden Houten, lead US economist at Oxford Economics.
The rate on the popular 30-year fixed mortgage averaged 6.86% this week, a three-month high, data from mortgage finance agency Freddie Mac showed.
Mortgage rates have increased in tandem with the yield on the benchmark 10-year US Treasury note on concerns over the Trump administration’s policies and the nation’s deteriorating fiscal outlook after Moody’s Investors Service cut its sovereign credit rating from the top “Aaa” level.
The House on Thursday passed Trump’s “big, beautiful bill,” which the nonpartisan Congressional Budget Office estimated would add about $3.8 trillion to the federal government’s $36.2 trillion debt in the next decade, if it becomes law.
The inventory of new homes last month dipped 0.6% to 504,000 units, remaining near levels last seen in late 2007. Homes under construction constituted most of the inventory. At April’s sales pace it would take 8.1 months to clear the supply of new houses on the market, down from 9.1 months in March.
With supply of previously owned homes now the highest in more than four years, the outlook for new construction is dim.
“Housing starts have already declined, suggesting that the availability of new builds will fade from here,” said Ben Ayers, a senior economist at Nationwide. “Additionally, the buildup in existing homes for sale should shift some demand away from the new home market over 2025.”
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