US Single-Family Home Sales Rise 4.1% in April, Median Prices Decline
Strong Demand, Lower Prices Drive Surge in New Home Sales; Construction Materials Demand on the Rise
Date: May 23, 2023
WASHINGTON - Sales of new single-family homes in the United States reached a 13-month high in April, driven by a persistent shortage of existing homes in the market and a significant decline in prices compared to the previous year.
According to a report released by the Commerce Department on Tuesday, this positive trend follows recent data indicating a surge in permits for future construction of single-family homes. The housing market, which was heavily impacted by the Federal Reserve's interest rate hikes, seems unaffected by the recent tightening of credit conditions, as homebuilder confidence reached a 10-month high in May.
Conrad DeQuadros, Senior Economic Advisor at Brean Capital, suggests that the decline in median home prices may be attributed to homebuilders tailoring the construction of new homes towards first-time buyers. This shift in focus aligns with the hypothesis that the housing market has largely adjusted to higher mortgage rates.
In April, new home sales rose by 4.1% to a seasonally adjusted annual rate of 683,000 units, marking the highest level since March 2022. The March sales pace was revised downward from 683,000 to 656,000 units. The government has also revised sales, inventory, and months' supply data dating back to January 2018.
New home sales are considered a leading indicator of the housing market, as they are recorded upon the signing of a contract. However, monthly fluctuations in sales figures can be volatile. Economists surveyed by Reuters had predicted a decline in new home sales to a rate of 665,000 units. However, sales rebounded by 11.8% compared to April of the previous year.
The median price of new homes in April stood at $420,800, representing an 8.2% drop from the same period last year. Most home sales last month were concentrated in the price range of $300,000 to $499,000.
Despite the surge in new home sales, the inventory of existing homes remains 44% below pre-pandemic levels, according to the National Association of Realtors. This shortage, combined with favorable mortgage rates, has kept builders busy, even as the overall housing market remains depressed.
Recent reports indicate that single-family building permits in April reached a seven-month high, reflecting the continued strength of the housing market. Mortgage rates have remained relatively stable this year, with the 30-year fixed mortgage rate hovering between 6.09% and 6.73%. The average rate peaked at 7.03% in late 2022, according to Freddie Mac.
New home sales increased in the Midwest and South regions but declined in the Northeast and West. At the end of April, there were 433,000 new homes on the market, a slight increase from 432,000 in March. Based on the current sales pace, it would take 7.6 months to clear the supply of houses on the market, down from 7.9 months in March.
The positive performance of the housing market, along with resilient labor market data, strong retail sales, and increased factory production, suggests that the US economy is regaining momentum in the second quarter. The S&P Global Composite PMI Output Index, which tracks the manufacturing and services sectors, reached a reading of 54.5 in May, the highest level since April 2022.
Following the upbeat reports, the Atlanta Federal Reserve raised its second-quarter gross domestic product (GDP) growth estimate to a 2.9% annualized rate, up from the previous estimate of 2.6%. Economists anticipate a recession in the second half of the year due to interest rate increases and a standoff over raising the federal government's borrowing cap, which have increased the risks of an economic downturn.
The survey's measure of new orders received by private businesses reached its highest level since May 2022, indicating growth in the private sector. However, the survey also revealed that services inflation remains elevated, while factory input prices fell below 50 for the first time in three years. Businesses reported increased hiring, with vacancies being filled more easily.
As the US housing market continues to show resilience, industry experts will closely monitor ongoing trends and market conditions for further insights into the nation's economic recovery.