New home sales drop off drastically in June
Sales of new single-family homes dropped significantly in June from a month prior, likely spurred by a rapid increase in mortgage rates which is compounding financial roadblocks for many would-be homebuyers.
Sales of new single-family homes hit a seasonally adjusted annual rate of 590,000 in June, more than 8% below May’s rate, according to the U.S. Census and the Department of Housing and Urban Development. This is the lowest sales rate since April 2020, the midst of the COVID-19 pandemic.
Sales of existing homes also dropped for the fifth straight month in June, according to the National Association of Realtors. Total existing home sales slid by 5.4% from the month prior. Year-over-year, existing home sales have fallen 14.2%.
The median sales price fell to $402,400 in June from $449,000 in May. Of even greater significance to the housing market, the monthly supply of homes on the market—a key measure of supply and demand in the housing market—increased to 9.3 months’ supply. Typically, a monthly supply of inventory around 6 or 7 indicates a “balanced” housing market. New home supply hasn’t been this high since late 2010, according to Forbes.
This rapid drop in sales can likely be attributed to rising mortgage rates, driven upward as the Federal Reserve aggressively increases interest rates in an effort to cool inflation. Thirty-year mortgage rates have risen from a low of 2.65% in early January 2022 to higher than 5.5% as of this writing, compounding already-prohibitive homebuying costs and shutting a large swath of the population out of the housing market. While mortgage rates aren’t all that high compared to historical averages, the rate of increase is unprecedented.
Economists are worried about what slipping home sales could mean for the economy at large. Per CONTI Capital’s own analysis, the likelihood of a recession has gone up, though there still remains the possibility that the U.S. will avoid a recession and instead experience a “soft landing” with moderated economic growth. When looking at the housing market, it’s important to note that while costs have begun to curb home sales and cut into home prices, the demand for homes is still very strong, especially in the Sun Belt markets we target.
For the population who have saved up for a down payment but find themselves priced out of the current housing market, a high-quality multifamily unit might appeal as a more affordable option. Or they might decide to rent a single-family home, which can offer many of the perks of buying a home, but at less cost and commitment. This population segment can afford their pick of rental options, compared with the renter-by-necessity cohort.
Facing a roiling macroeconomic environment stirred up by inflation and an increasing interest rate, CONTI is resolute that multifamily real estate is in a position of strength. Not only is multifamily real estate a hedge against inflation, but our acquisitions professionals have found that interest rate increases have had more impact on seller’s pricing expectations, rather than buyers.