LOS ANGELES (AP) — Home builders who weathered the worst of the housing market's downturn last year may be seeing their luck run out.
U.S. new home sales showed signs of recovery earlier this year but fell 7.7% and 16.5% year-over-year in April and May, respectively.
The U.S. Census Bureau said Wednesday that vehicle sales fell to a seasonally adjusted annual rate of 619,000 units last month, the lowest since November.
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The average interest rate on a 30-year mortgage has hovered around 7% this year, according to mortgage buyer Freddie Mac. Rising rates have put many would-be homebuyers off buying. Sales of existing homes, which make up the vast majority of the U.S. housing market, fell for a third straight month in May.
The recent slowdown in new-home sales marks a turn of events, with national sales last year up 4.2% from a year earlier, the first in two years. Meanwhile, U.S. existing-home sales fell about 19% to the lowest level in 30 years.
As in previous years, homebuilders have offered incentives such as paying to lower mortgage rates in hopes of lowering prices and cushioning the impact of rising mortgage rates.
Homebuilders including Miami-based Lennar Inc. and Los Angeles-based KB Home Co. have increasingly relied on such financial incentives this year to lure buyers as mortgage rates remain high. The incentives helped Lennar's new-home orders rise 19% year-on-year in the March-May period. KB Home posted a 2% increase in the same period.
“But for some homebuyers, these financial incentives alone are no longer enough to motivate them to purchase a home,” said Lisa Sturtevant, chief economist at Bright MLS.
A sharp rise in mortgage rates this spring has limited homebuying budgets, and continued uncertainty about when rates will fall has many homebuyers hesitant to purchase.
Still, these trends are favorable for those who can finance a home purchase at current mortgage rates or who can pay all in cash.
First, the supply of new homes is increasing. At the current sales pace, there was a 9.3 month supply of new homes available at the end of last month. This is the highest new home supply since October 2022.
Homebuilders are also slowing the pace of new home construction: Single-family home starts fell for a third straight month in May, falling to the slowest pace since October.
Another positive for home buyers is the decline in home prices: The average sales price of a new home fell 0.9% year-over-year to $417,400 in May.
“The new home market is expected to be weaker in the third quarter of 2024 than in the second half of 2023 due to rising housing inventory and weakening demand,” Sturtevant said.