Washington
CNN
–
Sales of newly built homes fell last month as mortgage rates remained high.
Sales of new homes, which make up only about 10% of the market, fell 11.3% in May from a month earlier to 619,000, according to government data released on Wednesday. This was the biggest monthly decline since September 2022 and marks the lowest level since November.
The May level was below the 647,500 economists expected in a FactSet poll. Mortgage rates rose to their highest level of the year in early May and have since declined. Borrowing costs are expected to ease this year, but not by much: Federal Reserve officials made only one rate cut this year. Inflation will need to continue to move closer to the Fed’s 2% target for the central bank to start cutting interest rates, and some officials have said it’s possible the Fed won’t end up cutting at all this year.
High interest rates and expectations that they will remain elevated for longer than expected are weighing on America’s homebuilders. U.S. homebuilder sentiment worsened in May for the second month in a row, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index released last week.
This is also affecting new home construction in the US. Housing starts fell 5.5% last month to a seasonally adjusted annual rate of 1.28 million units, the lowest level since 2020, also coming in well below economists’ expectations. Building permits, seen as a bellwether of future construction, fell 3.8%.
“Continuously high mortgage rates are keeping many potential buyers on the sidelines,” NAHB Chairman Carl Harris said in a release. “Homebuilders are also dealing with higher construction and development loan rates, chronic labor shortages and a shortage of buildable lots.”
The US housing market has for decades faced a chronic shortage of homes available for sale, which has put upward pressure on home prices.
High prices and high mortgage rates, along with a persistent housing shortage, have hurt this year’s critical spring home-buying season. US home prices rose in May for the eleventh straight month to $419,300, a record high since 1999, the National Association of Realtors said last week.
While that means Americans are stuck with low housing affordability, it’s also proving to be a headache for the Fed: Overall inflation has eased significantly since hitting a four-decade high two years ago, but housing costs have remained stubbornly high. It is actually making the final stretch of the Fed’s inflation battle more difficult. Fed officials, including Fed chief Jerome Powell, have said it’s only a matter of time before falling rents show up in the government’s official measures of inflation. Renters are still very much struggling in today’s tough US housing market.
The Biden administration has presented its solutions to the nation’s housing crisis. Treasury Secretary Janet Yellen on Monday announced $100 million in funding over the next three years “to support affordable housing financing,” according to a news release. On Wednesday, Vice President Kamala Harris and Acting Secretary of Housing and Urban Development Adrianne Todman announced $85 million in grant funding toward a housing program that “aims to identify and remove barriers to the production and preservation of affordable housing, as well as lower costs low housing costs”.
“Housing costs are a particular pain point for American families,” Lael Brainard, director of the White House National Economic Council, said last week at an event in Washington.
Brainard defended the Biden administration’s cap on annual rent increases for 2 million families in “low-income housing tax credit” units and a reduction in Federal Housing Administration mortgage insurance premiums that took effect in the spring , which she said has helped about 700,000 homeowners save roughly $900 a year.