The US Census Department noted that nearly 600,000 new single-family homes were sold in April 2022 on a seasonally adjusted basis – a considerable drop from the 709,000 sold in March of this year and well below the 750,000 target projected at the start of the quarter. The report was issued barely a week after the Commerce Department released its report that the number of housing permits issued fell to 1.8 million in April.

Despite this drop in sales, the median price of a newly-built home hit an all-time high of over $450,000. According to analysts, this is a reflection of the price wars which have decreased housing demand over the past quarter. According to Jeffrey Roach, chief economist at LPL Financial, we can expect this hit on the housing market to considerably affect the economy’s overall growth towards the end of the second quarter of 2022.

Indeed, average monthly payments for a new home have been up by 50% since September 2021. The bulk of this increase was caused by an increase in mortgage rates. According to Ian Shepherdson, chief economist at Pantheon Macro, the standard 30-year fixed-rate mortgage has risen by 5.25% within this month alone, up from a mere 3% at this time last year. 

Shepherdson also warned that the current housing rate of 1.7 million is a harbinger of an even greater decline in the coming months.

Now for Some Good News…

One potentially bright spot: Prices should begin to cool as demand keeps falling, says Comerica Bank’s Bill Adams, forecasting the roughly 20% price increases of late should fall to the low single digits by the end of next year.

But there’s a ray of light shining through the darkness: prices are expected to drop as the demand for new homes continues to fall. According to Bill Adams of Comerica Bank, the recent high of 20% is expected to drop to single-digit levels towards the end of 2023.

Likewise, the Federal Treasury has gone on a new interest rate hiking cycle, possibly its most aggressive in the past twenty years. In doing so, it is expected to ease the impact that high inflation has had on the industry but also lead to the creation of a new set of debt offerings that may prove more expensive in the long run.

Other factors that stand to impact the American housing market in the coming months are markets that continue to be volatile given the ongoing conflict in the Balkans, as well as a projected increase in fixed rates on new mortgages.