My May 26th blog Cracks in the Housing Market? raised the question of whether rising home prices and mortgage interest rates were finally beginning to impact the demand for housing. Well, new data suggests that higher housing costs are indeed having an impact.
As indicated, new home sales have fallen in five of the first six months of this year declining 8.1% in June alone. According to a Conference Board survey, 4.4% of consumers expect to purchase a home in the next six months, down from 5.7% in the previous month and the lowest level in seven years. And, the backlog of new homes for sale reached 9.3 months of sales in June, the highest level since 2008.
What impact is slowing demand having on home prices? Well, the picture is mixed. As depicted by the orange line, the median sales price of new homes sold finally broke in June falling 12% from the all-time high reached two months earlier. On the other hand, prices of existing homes rose 1.9% in June on top of a 14% increase in the previous five months.
There are two countervailing forces at play here. On the one hand, there is insufficient supply of homes in many markets creating unmet demand. On the other, the combination of rising prices and interest rates has increased the monthly cost of financing the median new home by 48% over the past year seriously challenging affordability. Given that housing represents 15-18% of the overall economy, the outcome of this shoving match will be very important.