New home sales fell in May as the housing market suffered higher mortgage rates.
New home sales fell 11.3% from April to a seasonally adjusted annual rate of 619,000, according to a Wednesday report from the Census Bureau. The number of new home sales is 16.5% lower than it was in May of last year.
The median sales price for a new home was $417,400 in May.
As of this week, the average rate on a 30-year, fixed-rate mortgage remained over 7%, according to Mortgage News Daily, which tracks daily changes in rates. That is down from a peak last year of above 8%, although is still much higher than in the years prior to the pandemic.
There has been a unique dynamic at play in the housing market because of the higher mortgage rates. Many people are holding on to their existing homes and waiting to sell until mortgage rates are lower, creating a shortage of existing homes for sale.
At the peak of the pandemic, the Federal Reserve cut its interest rate target to near zero, and mortgage rates plunged to very low levels. In early 2021, people were locking in sub-3% mortgages — the lowest levels in postwar modern history.
Existing home sales in May slowed 0.7% to a seasonally adjusted annual rate of 4.11 million, the National Association of Realtors reported recently. The pace of existing home sales is down nearly 3% from the year before.
Additionally, the median price for an existing home lurched to $419,300, which marks the highest median price ever recorded and the eleventh month in a row of year-over-year price gains.
“Eventually, more inventory will help boost home sales and tame home price gains in the upcoming months,” said NAR chief economist Lawrence Yun. “Increased housing supply spells good news for consumers who want to see more properties before making purchasing decisions.”
In response to the housing crunch, the Biden administration announced several small-scale measures in an effort to boost supply. Undersupply has been an issue for years.
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Among the measures announced this week by Treasury Secretary Janet Yellen is $100 million over the next three years in a new housing fund, which is designed to support financing for affordable housing.
“Given the scale of the challenge, we must and will continue to do more,” Yellen said during a speech on Monday.