By Alice Seeley

Sales of new single-family homes in the U.S. declined dramatically to their lowest level in two years in April, the U.S. Commerce Department said on May 24. New home sales shrank by 16.6% to a seasonally adjusted annual rate of 591,000 units last month, the lowest level since April 2020, when the economy was brought to a near halt amid the first wave of the COVID pandemic.

The decline shocked economists who predicted home sales to decline 1.7% to a seasonally adjusted annual rate of 750,000 units. Sales were 26.9% below the same month a year earlier when they stood at an adjusted annual rate of 809,000 units.

New home sales are a leading indicator for the housing market as they are counted at the signing of a contract. This is the fourth month that house sales have dropped. New home sales fell 5.9% in the Northeast, 13.8% in the West, 15.1% in the Midwest, and 19.8% in the South. According to the Commerce Department report, the inventory of new houses for sale, including properties in all stages of construction, rose to 444,000 in April, which is a 40% increase from a year earlier.

The median sales prices of new homes rose by 20% from a year earlier to a record high of $450,600 in April, the Commerce Department reported. Robert Dietz, the chief economist for the National Association of Home Builders, said the record high house prices are making it harder for first-time homebuyers to afford a property. In April, only 10% of new houses were priced below $300,000, compared with 25% a year earlier, Dietz stated.

“The combination of higher prices and increased interest rates are generating a notable slowing of the housing market,” Dietz said. “While the nation needs additional housing, home sales are slackening as tightening monetary policy continues to put upward pressure on mortgage rates and supply chain disruptions raise construction costs.”