WASHINGTON (Reuters) - Sales of new U.S. single-family homes tumbled in March as soaring mortgage rates and prices reduced affordability, but the housing market remains supported by an acute shortage of previously owned properties.
New home sales plunged 8.6% to a seasonally adjusted annual rate of 763,000 units last month, the Commerce Department said on Tuesday. February's sales pace was revised higher to 835,000 units from the previously reported 772,000 units.
Sales fell in all four regions. New homes are a leading indicator of the housing market as they are counted when a contract is signed, and can also offer an early read of the impact of higher mortgage rates on housing demand.
Economists polled by Reuters had forecast new home sales, which account for a small share of U.S. home sales, would fall to a rate of 765,000 units. Sales dropped 12.6% on a year-on-year basis in March. They peaked at a rate of 993,000 units in January 2021, which was the highest since the end of 2006.
The 30-year fixed-rate mortgage averaged 5.11% during the week ended April 21, the highest since April 2010 and up from 5.00% in the prior week, according to data from mortgage finance agency Freddie Mac (OTC:FMCC).
The Federal Reserve raised its policy interest rate by 25 basis points last month, the first rate hike in more than three years, as the U.S. central bank battles surging inflation. Economists expect the Fed will hike rates by 50 basis points next week, and soon start trimming its asset holdings.
But with near record-low inventory of previously owned homes, economists believe higher borrowing costs will have a moderate impact on the new housing market. Data last week showed sales of previously owned homes fell to the lowest level in nearly two years in March.
The median new house price in March jumped 21.4% from a year ago to $436,700. Almost all the houses sold last month were above the $200,000 price level. Strong house price growth is expected to persist through this year and into 2023.
There were 407,000 new homes on the market, up from 392,000 units in February. Houses under construction made up 65.5% of the inventory, with homes yet to be built accounting for about 25.8%.
The backlog of homes approved for construction but yet to be started is at an all-time high as builders struggle with shortages and higher prices for inputs like lumber for framing, as well as cabinets, garage doors, countertops and appliances.
At March's sales pace it would take 6.4 months to clear the supply of houses on the market, up from 5.6 months in February.