You won’t hear anyone from the White House administration using the “R” word. They’d prefer to stay in denial about a recession. But it is getting increasingly difficult to dance around that word in light of the recent information regarding single-family home sales in America.
The sales of new homes plummeted last month at the same time the mortgage interest rates began to rise. When you add this to skyrocketing prices on homes throughout the U.S., the market is feeling the beginning raindrops of recession.
The sale of new homes dropped by almost 17% last month from the revised numbers in March, according to the Census Bureau information that was released on Tuesday. When you compare the numbers to April of last year, they were down almost 30%.
Robert Dietz, the chief economist for the National Association of Home Builders, was willing to call it as he sees it and said that the drop in April for new homes was a “clear recession warning.”
The median price of a new home sale in April was a whopping $450,600. That is just about 20% higher than this time in April 2021. And the average interest rate on a 30-year fixed mortgage was 5.3% last week, according to Freddie Mac. That figure is up from 3.2% from the beginning of January 2022.
Dietz said that the combination of higher prices and increased interest rates was going to create a clear slowing of the housing market.
“While the nation needs additional housing, home sales are slackening as tightening monetary policy continues to put upward pressure on mortgage rates and supply chain disruptions raise construction costs,” Dietz said.
All of these numbers mean that the market is going to be flooded with homes people can’t afford to buy. In fact, there were an estimated 444,000 new homes on the market in April. That is a nine-month supply at the current sales rate. This is compared to a 4.7-month supply at this time in 2021.
America has now seen four consecutive months of dropping sales of new homes. Consumers are caught in the grip of inflation. Retailers like Walmart and Target reported fewer earnings last week than was estimated by Wall Street.
George Ratiu, a senior economist and manager of economic research at Realtor.com, said, “New home sales are feeling the impact of high construction costs and surging mortgage rates, which are keeping many buyers away this spring. While new construction gained favor with many would-be buyers over the past two years due to the extreme shortage of existing homes for sale, the rising cost of a new home is now pricing many people out of the market.”
Ratiu noted that the median price of a new home was 21% higher than last year and that meant that monthly mortgage payments were approximately $660 higher, which is a 52% increase from today’s average mortgage rate.
During the pandemic, the housing market was stable in our economy. But now it is seeing the same issues that the rest of the economy was hit with. We have rising prices and a declining ability to pay them.
Luke Tilley, Wilmington Trust’s chief economist, and Tony Roth, the chief investment officer, said that last week the National Association of Homebuilders Sentiment Index fell to the lowest it has been since June of 2020. They indicated that both current and future sales, along with buyer foot traffic, were all declining.
The Federal Reserve is now working aggressively to tighten the monetary policy in hopes of curbing inflation. They will release minutes from their meeting earlier this month and it is expected that they have raised interest rates by 50 basis points.
But, you probably still won’t hear the “R” word from the administration…
