US Economy News Today: New Home Sales Plunged in May

Existing Homes Currently Cost More Than New Homes

If you’re in the market for a single-family house and want to save a few bucks, you might want to try building a new one from scratch instead of buying an existing one.

The median price for a newly built house sold in May was $417,400 according to the Census Bureau, while the median existing homes sold for $424,500, data from the National Association of Realtors showed. Existing homes costing more than new builds is a rare occurrence—it’s only happened in 14 months since 1968, most recently in 2021, and only twice since 1982.

Read more about this housing market phenomenon here.

New Home Sales Plunged in May

High mortgage rates seem to be hurting sales for new homes, just as homebuilders have feared in recent months. 

New home sales plunged 15.5% in May from April, down to a seasonally-adjusted annual rate of 619,000, the lowest since November, the Census Bureau said Wednesday. Before that, sales had been on an upward trend between November and April, possibly reflecting a drop in mortgage rates between last fall and early spring.

“New home sales seem to be at a turning point,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a commentary. 

The drop in new home sales did come with a silver lining in the form of large upward revisions to previous months. The sales rate in April was revised up to 698,000 a year from 634,000.

Still, homebuilders have become more pessimistic about sales lately, according to surveys, and have had a harder time selling houses with the average rate for a 30-year mortgage hovering in the 7% range, making houses hard to afford for many buyers.

Mortgage Demand Up on Interest Rate Dip

Mortgage applications increased slightly from the prior week, pushed higher by a modest decline in interest rates, according to data from the Mortgage Bankers Association.

The Market Composite Index increased 0.8% for the week ending June 21, coming as the 30-year, fixed-rate mortgage dipped lower to 6.93%, the MBA said Wednesday. Applications for purchases were higher by 1%, helped along by increases in Federal Housing Administration and Veterans Administration loans. efinancing was unchanged when compared with the prior week. 

“Lower rates, however, were still not enough to entice refinance borrowers back, as most continue to hold mortgages with considerably lower rates,” said Joel Kan, MBA vice president and deputy chief economist.

-Terry Lane

Inflation Forcing Middle-Income Earners to Make Adjustments, Survey Shows

Middle-income earners are taking second jobs, cutting back on spending and delaying large purchases to deal with inflation, a new survey shows.

Four out of five respondents to a survey conducted by Santander US. said inflation was a major concern. More than 70% reported seeing higher prices in the second quarter. To meet the higher prices, 90% said they have cut spending in at least one area, while two out of every five said they had taken on a side gig or second job within the last year.

However, their efforts appear to be working, as the survey showed that 77% of middle-income households stay ahead of their bills, with nearly three-quarters believing they are on the right track toward financial prosperity. 

“While current economic conditions remain challenging, American households are showing great resiliency by taking the necessary actions to navigate through inflationary pain points,” said Santander US CEO Tim Wennes. “For many households, this has meant scaling back on spending, including summer activities.”

Elevated housing costs are one of the biggest financial issues for middle-income households, defined as those earning between $50,000 to $148,000 a year.  It’s helped shift views on the housing market, with the survey showing that 51% now don’t believe homeownership is required to be financially prosperous. 

“Higher housing prices have led to a shifting view on the importance of homeownership, with many appreciating the flexibility of renting,” the study showed. 

-Terry Lane