New-Home Sales in Slump Amid Growing Inventory Across the US

High interest rates and inflated home prices amid growing inventory is wreaking havoc on home sales across the nation.

Sales of new US homes unexpectedly declined to a seven-month low in June, Bloomberg reported. New-home sales are considered a more timely measurement than resale homes, which are calculated when contracts close, according to Bloomberg.

Contract signings on new single-family homes appeared to be gaining momentum throughout the spring, but then dropped nearly 15 percent in May, the largest drop in two years, according to government data reviewed by Bloomberg.

Meanwhile, inventory is at its highest since 2008, and at the current sales rate, the existing inventory would last more than nine months.

Mortgage rates, which have been a deterrent for prospective buyers, have also gone below 7 percent in recent weeks. However, they are still double what they were at the end of 2021. Builders have offered sales incentives like buying down customers’ mortgages to encourage sales, Bloomberg said.

Stephen Stanley, chief US economist at Santander Capital Markets told Bloomberg they were “hoping for robust demand, but the rise in home prices and rebound in mortgage rates combined to torpedo affordability, and homebuying demand has deteriorated.” The result is home inventories that “have backed up noticeably.”

What this means is that new residential construction will likely continue to decline. New single-family residential construction has already been declining for four consecutive months, the longest stretch since 2018.

However, builders have been able to keep the pace since the resale market is low. Robert Dietz, chief economist at the National Association of Home Builders, told Bloomberg that builders will typically limit production once the supply-sales ratio exceeds 7.5 months.

Now that inventory is going up, price growth is steadying: The median sales price for a house is relatively unchanged in recent months, after rapid growth in 2021 and 2022.

Townhouses may also be gaining popularity. Michael Murray, Chief Operating Officer of DR Horton, Inc., one of the biggest US builders, told Bloomberg he is considering boosting construction of townhouses in some markets. He said they had an unexpected improved profit margin after cutting average house sizes by 2 percent for affordability.

— Christina Previte