Current State of Real Estate Market: Stall Amidst Soaring New Home Sales
The housing market is experiencing contrasting trends between new and existing homes. Homebuilders are currently selling more affordable new houses, while sales for existing homes are slow and prices are reaching record highs.
According to the Census Bureau, new home sales saw a 4.4% increase in July compared to June, and a significant 31.5% increase compared to the previous year. This pace suggests that if sustained, the annual rate could reach 714,000 houses, the fastest since February 2022. The median price for new homes in July was $436,700, slightly higher than June’s $416,700, but considerably lower than the price in July 2022, which was $478,200.
In contrast, existing home sales declined by 2.2% in July compared to the previous month and were down 16.6% year-over-year, as reported by the National Association of Realtors.
Both markets are impacted by rising mortgage rates, which have escalated after historic lows during the pandemic. The Federal Reserve’s campaign of anti-inflation interest rate hikes has pushed monthly mortgage payments to levels unattainable for many households.
The disparity between the two markets can be attributed to a shortage of inventory hindering existing home sales, as stated by the National Association of Homebuilders. With only 1.1 million homes for sale in July, less than half the average number between 1999 and the start of the pandemic, homeowners are hesitant to sell due to the low mortgage rates they secured during the years of low borrowing costs. As a result, sellers have remained in control, without the need to lower prices.
Builders have responded to the demand by constructing new homes and even selling them at competitive prices compared to used homes. In June, the median price difference between new and existing homes was just $6,700, based on data from the Census Bureau and the National Association of Realtors.
Conrad DeQuadros, senior economic advisor at Brean Capital, suggests that homebuilders are constructing more affordable homes to meet the needs of homebuyers who cannot find sufficient supply in the resale market due to the lock-in effect of previously low mortgage rates.