Home Buyers Seek Out New Homes, but at a Slower Pace

In June, home buyers continued their search for newly built properties, although the rate slowed compared to the previous month. The latest Census data reveals that new homes were sold at a seasonally-adjusted annual rate of 697,000, a 2.5% decrease from the previous month. It's worth noting that May's rate was revised downward from the initial figure of 763,000 to 715,000. This decline marks the first monthly drop since February.

Following May's surprising surge, investors had anticipated a higher rate of sales in June. FactSet economists predicted a seasonally-adjusted annual rate of 723,500. However, builder shares experienced a slight decline on Wednesday morning. Notably, two exchange-traded funds that track home builders and related industries, SPDR S&P Homebuilders (XHB) and iShares U.S. Home Construction (ITB), were trading lower shortly after 10:30 a.m.

Despite the month-over-month decrease in sales and the downward revision of May's figures, June's temperature check on the new home market remains positive. Compared to the same month in 2022, the rate is approximately 24% higher. Moreover, it represents the highest rate since March 2022, except for May.

This report is particularly relevant given the current state of the housing market. Higher mortgage rates have made it challenging for some buyers to enter the market and have led others to stay put in their current homes. Consequently, sales of previously owned homes have stagnated. Builders have stepped up to meet some of the demand created by this dynamic shift.

Ryan Marshall, President of home builder PulteGroup, addressed this issue during an earnings call on Tuesday. He emphasized how existing homes were likely to remain in short supply for the foreseeable future, as he hadn't seen any rate forecasts indicating a return to 4% mortgages anytime soon.

In summary, while the rate of new home sales in June slowed compared to the previous month, it remains favorable overall. The housing market continues to face challenges due to higher mortgage rates, but builders are responding to the demand.