Home Sales Disappoint in April

New home sales in April fell to 673,000 units for the month, a decline of 6.9% to the revised March figure. Compared to April of last year, sales are up 7%. Existing home sales were down 0.4% in April. We are expecting a bump in total home sales over the next few months, given a pop in mortgage applications earlier this spring and recent improvements in builder confidence. Those eventual gains are expected to be short-lived.

Total sales are down 4.4% over the year due to increasing home prices. Inventories remain tight, despite recent increases. The supply of entry-level homes on the market remains particularly tight. Median new home prices jumped 12% between March and April to $342,200, well above what most buyers consider entry level. Sales of homes below $300,000 fell, underscoring a shortfall in first-time buyers.

Millennials, which are now aging into the first-time buyer market, remain conspicuously absent. Damage to their earnings sustained by graduating into a crisis and a large overhang of student debt had forced them to delay marriage, childbearing, and home ownership. This is despite a strong desire to own a home among our youngest workers.

In fact, the homeownership rate fell in the first quarter for the first time in two years. Home sales to first-time buyers are down on a year over year basis.

While existing home sales prices continued to climb, losses in yearly sales were broad-based. In the South, the biggest housing market in the country, new home sales fell in April after the March figure was revised up to the highest level since the summer of 2007. That was before the financial crisis took effect, but well after the peak in sales seen in 2005 during the height of the housing market bubble. New home sales are up compared to this time last year, which is a welcome signal; it is considered to be the most important region for new construction activity. The Midwest and West saw trends similar to the South, while the Northeast saw a monthly uptick in sales, but a year over year decline.

Bottom Line
The housing market is still lagging the overall economy. Affordability and the legacy effects of the crisis on millennials are major hurdles. Any boost we see in sales later this spring is expected to be short-lived, and fail to reach entry-level buyers. The average construct price on mortgage applications went up in the first quarter, suggesting that the market continues to fail to engage first-time buyers. The housing market peaked in 2017, a canary in the coal mine for the overall expansion.

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