In a recent report, newly built home sales experienced a decline due to elevated mortgage rates. According to government data released on Wednesday, new home sales dropped 11.3% in May from the prior month, down to 619,000. This marks the steepest monthly decline since September 2022 and hits the lowest level since November.
Economists had projected sales to reach 647,500, but the impact of high mortgage rates took a toll. Despite expectations for borrowing costs to ease slightly this year, Federal Reserve officials are only penciling in one rate cut for the year. Inflation will need to reach the Fed’s 2% target for interest rates to be cut, and there is uncertainty whether the Fed will cut rates at all this year.
The persistently high mortgage rates are also affecting America’s homebuilders, with US homebuilder sentiment declining in May for the second consecutive month. Housing starts fell 5.5% last month to 1.28 million units, the lowest level since 2020. Building permits, seen as a predictor of future construction, dipped 3.8%.
NAHB chairman Carl Harris attributed the slowdown in home sales to high mortgage rates, construction costs, labor shortages, and lack of buildable lots. These factors, combined with a chronic shortage of homes for sale, have driven home prices up.
The Biden administration has proposed solutions to address the housing crisis, with Treasury Secretary Janet Yellen announcing $100 million in funding over the next three years to support affordable housing financing. Vice President Kamala Harris and Housing and Urban Development Acting Secretary Adrianne Todman also announced $85 million in grant funding for a housing program aimed at lowering housing costs.
As the housing market grapples with high prices and mortgage rates, Fed officials are working to combat inflation. Renters, in particular, are facing challenges in the tough US housing market. Lael Brainard, director of the White House’s National Economic Council, emphasized the importance of addressing housing costs for American households. The Biden administration’s efforts, such as capping rent increases and reducing mortgage insurance premiums, aim to provide relief to homeowners and renters alike.
