New home sales unexpectedly plunged much more than economists projected—and for the fourth consecutive month—in April, according to data released Tuesday, adding to signs that the once booming housing market could be due for a steep turnaround.
About 591,000 new single-family houses were sold last month on a seasonally adjusted annual basis, plunging 16.6% below the March rate of 709,000 and falling sharply below analyst projections of 750,000, the Census Department reported on Tuesday.
“In short, the party is over,” Pantheon Macro chief economist Ian Shepherdson said in emailed comments after the report, pointing out the collapse in sales follows a “steep downward trend in mortgage applications” as mortgage rates start to rise on the heels of the Federal Reserve interest rate hikes in March.
]The monthly payment required to buy a home has risen by about 50% since September, with about two-thirds of the increase due to the spike in rates, says Shepherdson; the average 30-year fixed-rate mortgage has climbed to 5.25% this month, from 3% just one year ago.
Despite the collapse in sales, median prices rose to a new all-time high of more than $450,000—reflecting the price pressure that’s dampening housing demand, LPL Financial chief economist Jeffrey Roach said in a Tuesday note, warning the softening housing market will drag on overall economic growth this quarter.
The data comes less than a week after the Commerce Department reported the annualized number of housing permits tumbled to a five-month low of 1.8 million in April, while housing starts clocked in at a worse-than-expected rate of 1.7 million—foreshadowing a steeper decline in the months to come, says Shepherdson.
One potentially bright spot: Prices should begin to cool as demand keeps falling, says Comerica Bank’s Bill Adams, forecasting the roughly 20% price increases of late should fall to the low single digits by the end of next year.
Despite the recent signs of a slowdown, historically high savings rates and unprecedented government stimulus efforts helped ignite a home-buying frenzy during the pandemic. The median home sales price was $346,900 last year, up 17% to the highest level on record, according to the National Association of Realtors. In addition to an economy awash with cash, “chaotic” supply chains have also contributed to a dearth in housing supply and rising prices, according to Bank of America. “Builders have been bogged down,” says Bank of America’s Alexander Lin, pointing out homes under construction last year exceeded the number of homes built for the first time in history, while the number of homes authorized but not started reached a record high.
The Fed has embarked on its most aggressive interest-rate hiking cycle in two decades as it hopes to ease decades-high inflation while inevitably making a slew of debt offerings—including future mortgages—more expensive. “Volatile markets and the uncertainties of war put the brakes on rising mortgage rates,” says Bankrate Chief Financial Analyst Greg McBride, cautioning that home-equity lines of credit almost always carry variable rates that see almost immediate increases, while fixed rates will start increasing for new mortgages.