Affordability Concerns Push New Home Sales Lower in May

Elevated mortgage rates, rising inflation and economic uncertainty kept many buyers out of the market in May as consumers and builders continue to deal with challenging affordability conditions.

Sales of newly built single-family homes fell 7.3% in May to a seasonally adjusted annual rate of 580,000, according to newly released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The pace of new home sales is down 6.8% from a year earlier.

"The decline in builder sentiment is consistent with our latest builder surveys," said Bill Owens, chairman of the National Association of Home Builders (NAHB) and a home builder and remodeler from Worthington, Ohio. "Many potential buyers remain on the sidelines as elevated mortgage rates, higher construction costs and limited purchasing power continue to reduce the pool of qualified buyers."

"While builders are employing incentives and pricing adjustments to support sales activity, many households remain priced out of the market," said Danushka Nanayakkara-Skillington, NAHB's assistant vice president for forecasting and analysis. "A sustained reduction in financing costs would help improve housing affordability and strengthen housing demand. The trajectory of mortgage rates and improvements in housing affordability will be key factors determining whether demand stabilizes in upcoming months."

A new home sale occurs when a sales contract is signed, or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the May reading of 580,000 units is the number of homes that would sell if this pace continued for the next 12 months.

New single-family home inventory in May was 496,000 units, down 1.4% compared to a year ago. This represents an elevated 10.3 months' supply at the current building pace. The inventory of completed, ready-to-occupy homes inventory was 115,000 homes in May, the same level as a year ago.

The median new home sale price was $424,900, up 2.0% from April and virtually unchanged from a year ago.

Regionally, on a year-to-date basis, new home sales are up 1.9% in the Northeast and 4.2% in the Midwest. New home sales are down 8.2% in the South and 11.4% in the West.