Kiplinger Housing Outlook: Existing-Home Sales Edge Up This Spring, but New-Home Sales Disappoint
Stubbornly high mortgage rates and economic uncertainty continue to weigh on housing demand.
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Home-price growth is showing signs of cooling. The S&P Cotality Case-Shiller U.S. National Home Price Index, which measures the price of existing homes across the nation, posted a 0.7% annual gain in March, down from a 0.8% rise in the previous month. On a month-over-month, seasonally adjusted basis, national home prices actually slipped 0.2%. While a spring lift offered some positive movement before seasonal adjustments, underlying momentum remains soft, as higher mortgage rates take a bite out of demand. Chicago reported the strongest gains over the year, followed by New York and Cleveland. At the other end of the market, Seattle saw the steepest decline in home prices, followed by Denver and Tampa.
Building conditions remain challenging for builders. Total housing starts fell 2.8% in April, to an annualized rate of 1.465 million units, reversing some of the sharp gains seen in March. The monthly decline was largely driven by a 9% drop in single-family starts, which overshadowed a 14.3% surge in multifamily construction. Despite the monthly pullback, overall housing starts remain 4.6% higher than they were a year ago. With the inventory of completed homes for sale nearing levels last seen in 2009, single-family housing starts have limited potential to grow until more of that supply is sold. Meanwhile, builders continue to offer price cuts and other incentives to encourage sales, though they are scaling back these price cuts to protect profit margins. Builders say high energy costs and burdensome government approval processes are also adding to their cost pressures.
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New-home sales will likely hit bottom over the coming months. They fell 6.2% in April from the previous month, to 622,000 annualized units. Sales declined in all Census regions except the West in April, while the annual sales rate fell 11.3%. Higher interest rates and growing economic uncertainty are squeezing household budgets and keeping buyers on the sidelines. The supply of new homes for sale remains elevated, reaching 9.4 months of supply at the April selling pace. The median price of a new home jumped to roughly $423,000 in April.
By contrast, existing-home sales edged up in April after posting a decline in the prior month. Sales of previously owned homes rose 0.2% to 4.02 million annualized units in April.
Multifamily home sales drove the overall gain in April, while single-family sales remained flat.
Still, sales remain below prepandemic trends due to the lingering effects of sharp price increases and elevated mortgage rates. The supply of existing homes for sale increased to 4.4 months at the current selling pace in April, implying that once mortgage rates start falling, sales should see an uptick.
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