Homebuyer enthusiasm for newly built houses wanes in June
New home sales fell more than expected in June after many months of surprise gains.
Sales of newly built homes fell 2.5% to a seasonally adjusted rate of 697,000 units last month from the revised May rate of 715,000, according to the Census Bureau. Big sales declines in the Midwest and West weighed down the national pace of sales, which came in worse than the Bloomberg consensus expectation of 725,000 units for June.
Still, the pace of sales was 23.8% above the year-ago level.
The slowdown in activity may reflect that the peak buying season is winding down along with higher mortgage rates during the month, rising home prices, and fewer builder inducements. Also, the data is often updated later after its initial release.
"Mortgage rates firmed up by about a quarter percentage point in June compared to May, and I suspect that had some effect. As well, builders have been using somewhat fewer incentives to lift sales," Keith Gumbinger, vice president at HSH.com, told Yahoo Finance.
"It's also worth keeping in mind that new home sales are frequently revised in fairly large increments. And, looking over data since 2010, it would seem that sales in June were somewhat lower than in May in nine of the 14 comparable periods, so there may also be some seasonality/seasonal adjustment effects being reflected in the data," he added.
Sales in the Midwest dropped the most month over month, plunging 28.4% in June. New home sales in the West also registered a huge drop, falling 13.9% from May's rate. Sales in the South increased 4.3% in June, while activity in the Northeast jumped 20.6% from May.
The monthly decline in sales follows three straight months of robust activity as homebuyers — many first timers — were stymied by few choices on the resale side and turned to new homes.
“Higher interest rates have led millions of existing homeowners with mortgages under 4% to postpone plans to list their home for sale, and for many prospective buyers, that supply vacuum has left newly built homes as the only game in town,” Rose Quint, assistant vice president of survey research at the National Association of Home Builders (NAHB), wrote in a blog post.
The share of buyers looking for new construction rose from 20% to 25% between the second quarter of 2022 and the second quarter of 2023, the NAHB found. By contrast, the share of folks interested in previously owned homes dropped from 39% to 36% over the same period.
As a result, builders started catering to these frustrated buyers with smaller footprints and more affordable finishes.
“Builders are also responding to this shift by bringing slightly smaller homes to market in an effort to meet lower price points and extending financing incentives for cash-strapped first-time buyers or rate-locked homeowners looking to trade up," George Ratiu, chief economist at Keeping Current Matters, a real estate insights and analytics company.
To further help with affordability, builders have been offering discounts on mortgage rates, a big advantage over regular home sellers. Still, "sales volumes can be significantly affected by changes in mortgage rates and other economic factors," Mike Murray, D.R. Horton’s executive vice president, said last week in the company's latest earnings call.
And in June, mortgage rates did stay elevated, with the average rate on the 30-year fixed mortgage not falling below 6.5% — markedly higher than the previous three months.
Home prices have also have been marching higher. The average sales price of newly sold homes in June was $494,700, up from May’s average of $488,700, the government found.
Just 25% of builders reduced home prices in June, the NAHB found. That’s down from 27% in May and 30% in April. That share has been declining since hitting a peak of 36% in November 2022. The average price reduction was 7% in June, down from 8% in December of last year.
Some 56% of builders offered incentives to buyers in June, a slight improvement from 54% in May, but less than 62% in December.
“Any retailer will tell you that with at least a fair number customers coming in the door, there's less reason to need to run a sale to attract them,” Gumbinger told Yahoo Finance before the data release. “Should demand flag anew, it's reasonable to expect that sales incentives will return — at least to a level to get folks to start coming back in the door again.”
Gabriella Cruz-Martinez is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
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