New home sales in the U.S. dropped steeply in April, which has some experts warning of impending recession and others attributing the fall to a natural, necessary market cooling.
According to the U.S. Census Bureau, the pace of new home sales fell 16.6% in April from the previous month, at a seasonally adjusted rate of 591,000.
This figure is the lowest since April 2020, at the start of the pandemic, and 26.9% lower than a year ago.
It also is the fourth straight month that new home sales have fallen.
Most predictions from analysts and economists leading up to the data were significantly higher than this drop. A Bloomberg survey, for example, had economists calling for a 749,000 rate, and consensus estimates were at a mere 1.7% drop.
The most influential factors for the sales fall include higher construction costs, supply chain issues, and higher mortgage rates, experts say.
The government report also showed that sales of existing homes dropped in April to the lowest levels since June 2020.
A measure of backlogs that included homes sold in April that were waiting for the start of construction rose slightly from the previous month, to 185,000.
While there were 444,000 new homes for sale at the end of the month, nearly all of them had yet to be completed.
According to Mortgage News Daily, the drop in new home sales is perhaps not as dramatic as it seems.
“Yes, sales are declining,” Matthew Graham writes, “but that’s a logical consequence of the affordability issues created by an unprecedented simultaneous surge in prices and rates. Housing overheated. Cooling is welcome.”
Graham says that examining and quantifying the cooling will be more meaningful in the coming months, as home price data catches up with supply, demand, and affordability impacts.
Meanwhile, Robert Dietz, chief economist for the National Association of Home Builders, is calling the drop a “clear recession warning” for the overall economy for the quarters ahead.
While many prospective buyers are continuing to be priced out of the market, and experts expect further drops to come, many other market experts insist that buyers examine their own finances and work with a local mortgage lender.
Mortgage rates have been steadily rising for months, but they still remain historically favorable. Individual buyers may have a completely different scenario than the larger picture, experts say.
The bottom line: Market experts don’t want borrowers to get discouraged by the news. They say it’s more about a borrower’s personal financial situation and local housing market than what the overall data shows.
Photo by Binyamin Mellish