Fed Rate Hike Causes Sharp Drop in US Housing Demand... April New Home Sales See Largest Decline in 9 Years

[Photo by AFP Yonhap News]

[Asia Economy Reporter Park Byung-hee] It has been confirmed that new home sales in the United States sharply declined immediately after the Federal Reserve (Fed), the U.S. central bank, raised the benchmark interest rate for the first time in over three years last March.

According to the Wall Street Journal (WSJ) on the 24th (local time), new home sales in April, released by the U.S. Department of Commerce on the same day, recorded an annualized rate of 591,000 units. Sales decreased by 16.6% compared to the previous month, marking the largest drop since 2013. The home sales figure was also the lowest since April 2020.

The 16.6% decline in new home sales in April far exceeded Wall Street economists' expectations. Economists surveyed by WSJ had predicted a 1.7% decrease.

Due to the Fed's interest rate hikes, mortgage rates in the U.S. have risen sharply, significantly reducing housing demand.

According to Freddie Mac, the 30-year fixed mortgage rate, which was 3.1% at the beginning of the year, surged to 5.25% last week.

Trend of Growth Rate in New Home Sales in the United States

Market insiders expect the decline in home sales to continue as the Fed plans to keep raising the benchmark interest rate. After starting rate hikes in March, the Fed decided on a so-called 'big step' earlier this month, raising the benchmark rate by 0.5 percentage points at once for the first time in 22 years.

New home sales account for just over 10% of total U.S. home sales. While existing home sales, which make up 90%, are counted after the sale is completed, new home sales are recorded at the contract stage. For this reason, new home sales are interpreted as a leading indicator of the housing market trend.

Housing prices remained at high levels. The median price of new homes surged 19.6% year-over-year to $450,600. WSJ explained that housing demand continues to exceed supply due to an unusually low inventory of homes for sale.

Existing home sales have also declined for three consecutive months recently, with April sales hitting the lowest level since June 2020.

WSJ diagnosed that the housing market is showing signs of slowing down, noting that home sales are decreasing and mortgage applications sharply dropped in mid-May.

This content was produced with the assistance of AI translation services.