Sales of new U.S. homes fell more than expected in June to the lowest level in two years as rising mortgage rates and the relentless increase in home values slowed activity by edging prospective homebuyers out of the market.
New single-family home purchases tumbled 8.1% to a seasonally adjusted annual rate of 590,000 units, the lowest level since April 2020, the Commerce Department reported on Tuesday. Economists surveyed by Refinitiv expected new home sales – which account for a small percentage of total sales – to fall 5.2% last month.
On an annual basis, new home sales are down 17.4%.
The median new house price climbed 7.4% in June from the year-ago period to $402,400. There were about 457,000 new homes on the market at the end of June, the report shows, an increase from 447,000 units in May.
The interest rate sensitive housing market has started to cool noticeably in recent months as the Federal Reserve moves to tighten policy at the fastest pace in three decades in order to cool consumer demand and bring scorching-hot inflation under control. Policymakers already approved a 75-basis point rate increase in June and are expected to approve another of that magnitude on Wednesday at the conclusion of their two-day, policy-setting meeting.
Following the rate hikes, the average rate on a 30-year fixed mortgage – the most popular among new homeowners – climbed to nearly 6% in June, though they've since moderated. The average rate for a 30-year fixed rate mortgage hovered around 5.51% for the week ending July 14, according to recent data from mortgage lender Freddie Mac.
That is significantly higher than just one year ago, when rates stood at 2.88%.
Combined with high home prices, the rapid rise in borrowing costs has pushed many entry-level homebuyers out of the market. A new report from Redfin last week showed that the share of sale agreements on existing homes canceled in June was just under 15% of all homes that went under contract – the highest since early 2020ed at the height of the COVID-19 pandemic.
Other data released last week showed that sales of previously owned homes tumbled 5.4% in June from the previous month to an annual rate of 5.12 million units, the lowest level since June 2020. It mark the fifth consecutive month that sales have declined. On an annual basis, home sales plunged 14.2% in June.