US new home sales plunged unexpectedly last month

Washington (CNN) — Sales of newly built homes dropped last month as mortgage rates remained elevated.

New home sales, which make up only about 10% of the market, fell 11.3% in May from the prior month, to 619,000, according to government data released Wednesday. That was the steepest monthly decline since September 2022 and marks the lowest level since November.

May’s level was below the 647,500 economists projected in a FactSet poll. Mortgage rates soared to the highest level of the year in early May and have since trended down. Borrowing costs are expected to ease this year, but not by much: Federal Reserve officials penciled in just one rate cut this year. Inflation will need to continue to drift closer toward the Fed’s 2% target for the central bank to begin cutting interest rates, and some officials have said it’s possible the Fed may not end up cutting at all this year.

High interest rates, and expectations that they’ll remain elevated for longer than expected, are weighing on America’s homebuilders. US homebuilder sentiment soured in May for the second month in a row, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index out last week.

That’s also taking a toll on the construction of new US homes. Housing starts fell 5.5% last month to a seasonally adjusted annual rate of 1.28 million units, the lowest level since 2020, also registering well below economists’ expectations. Building permits, seen as a bellwether of future construction, dipped 3.8%.

“Persistently high mortgage rates are keeping many prospective buyers on the sidelines,” NAHB chairman Carl Harris said in a release. “Home builders are also dealing with higher rates for construction and development loans, chronic labor shortages and a dearth of buildable lots.”

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