Higher mortgage rates are rapidly cooling American real estate prices. US Census Bureau data shows a very sharp moderation in new housing activity in April. Sales fell to the lowest level since the public health crisis, but inventory is the standout. The market hasn’t seen this much new housing inventory since 2008, falling into a buyer’s market. If this persists, pressure for home prices to fall will materialize.
New Home Sales Fell To The Lowest Level Since April 2020
New home sales are falling fast as the market faces rising mortgage costs and inflation. The seasonally adjusted annual rate (SAAR) of home sales fell to 591,000 in April. This is down 16.6% from the month before, and 13.7% lower than the same month last year. We know, without context that doesn’t mean a lot. It was the fewest number of homes sold since April 2020.
US New Home Sales
The seasonally adjusted annual rate of new home sales across the United States.
Source: US Census Bureau; HUD; Better Dwelling.
US New Housing Inventory Hasn’t Been This High Since 2008
Strong construction of new homes and falling demand helped relieve housing inventory pressure. Seasonally adjusted new home inventory fell to 444,000 homes in April. This is 8.3% lower than the month before and a 40.1% drop from the same month last year. US new home inventory hasn’t been this high at the end of a month since 2008.
US New Home Inventory
Seasonally adjusted new home inventory across the United States, at the end of each month.
Source: US Census Bureau; HUD; Better Dwelling.
US New Housing Inventory Reached A Buyer’s Market
Falling new home sales and rising inventory is likely to moderate home price growth soon. There was just 9 months of inventory in April, a big jump from the 6.9 months in March 2021. It’s also nearly double the 4.7 months seen in April 2021. US new home buyers haven’t seen this much inventory since May 2010.
US New Home Months of Inventory
Seasonally adjusted months of new home inventory across the United States.
Source: US Census Bureau; HUD; Better Dwelling.
Months of inventory are often used to determine whether a market is hot or not, in the US. Between 4 and 6 months of inventory is seen as balanced, where home prices are right for demand. Lower is a seller’s market and a lack of inventory tends to drive home prices higher. Above, which is where we are, is a buyer’s market where home prices are expected to fall.
Unless inventory dries up or buyers flood the market fast, the price growth is going to face a hurdle. However, slowing activity might be a welcome condition for regulators and the market.
