New home sales nose-dived to their lowest level since 2016 last month, according to Census Bureau data, down 29.6% year-over-year and 30% on an annualized basis as a national draw-down from pandemic housing market highs continues seemingly unabated through the summer.
At a seasonally adjusted annualized rate of 511,000, with sales falling 12.6% from June, this year is looking more and more like a low point in the housing market with affordability caused by both persistent supply and demand imbalances, along with fluctuating mortgage rates keeping many buyers out of the market.
The news comes following last week’s existing home sales report, which offered a similar picture of the market with sales down broadly across regions and demographics. National Association of REALTORS® Chief Economist Lawrence Yun has said that market conditions right now constitute a “housing recession,” with other experts joining that chorus.
“The sharp drop in new home sales is another clear indicator that housing is in a recession,” said Danushka Nanayakkara-Skillington, National Association of Home Builders (NAHB) assistant vice president, in a statement. “The combination of higher prices and increased interest rates are generating a notable slowing of the housing market.”
As an overall housing downturn continues, prices have remained sticky, with the median sales price of a new home coming in at $439,400, up from $390,500 a year ago. Price appreciation has kept homeowners happy, and—so far—prevented a glut of foreclosures even during the so-called recession.
At the same time, builder confidence and mortgage applications have plummeted in recent months, meaning the lending and construction industries aren’t convinced of a quick turnaround or recovery. Available inventory has also increased sharply in recent months, with the Census data estimating 464,000 new homes for sale at the end of July.
“The disappointing sales pace mirrors an ongoing decline in builder sentiment as elevated mortgage rates and higher construction costs are pushing more consumers out of the market, particularly entry-level buyers,” said NAHB chairman Jerry Konter in a statement.
A higher proportion of new homes sold this month had not yet been started in July compared to the same time last year. Around 32% of new homes sold last month had not yet started construction compared to 28% in July of last year.
A significantly lower proportion of new homes were sold at lower price points this year compared to last year—about 8% going for under $300,000 this July compared to about 22% in July 2021. Economists and advocates have continued to sound the alarm that entry-level homes are not being built fast enough to meet demand.