High interest rates continue to suppress demand for home buyers. New home sales in the US fell to their lowest level in six months in July

The Zhitong Finance App learned that new home sales in the US significantly cooled down in July, falling to their lowest level in six months. Although homebuilders continue to attract buyers through price cuts, subsidized mortgage interest rates, and free upgrades, high mortgage interest rates and pressure on housing affordability are stifling market demand, especially in the entry-level housing market where first-time buyers are located.

According to data released by the US government on Tuesday, contract sales of newly built single-family homes fell 10.5% month-on-month in July, and seasonally adjusted annualized sales fell to 607,000 units, lower than the 620,000 units expected by economists surveyed by the media.

New home sales in the US have been declining for three months in the past four months, further indicating that high financing costs are continuing to put pressure on the real estate market.

In terms of price, the median sales price of new homes in the US fell 0.9% year on year to US$393,800 in July. In recent years, in order to cope with weak demand, many home builders have begun to stimulate sales by directly reducing prices, providing free home upgrades, and helping buyers lower interest rates on mortgage loans.

These measures have helped maintain market demand to a certain extent, but for first-time homebuyers with limited budgets, the housing affordability problem caused by the combination of high housing prices and high mortgage interest rates is still prominent.

Major US home builder Houghton Homes (DHI.US), which has entry-level homes as one of its main markets, said earlier that as demand from first-time buyers weakens, the company expects this year's residential sales volume to fall short of previous expectations.

In contrast, the performance of the high-end residential market is relatively more resilient. Luxury home builder Toll Brothers (TOL.US) announced last week that in the three months up to July, the number of new residential contracts signed by the company has increased. The company said that its wealthy customers are less sensitive to changes in mortgage interest rates, and that many buyers can use funds obtained from selling their original homes to buy new, more expensive homes.

This difference also reflects the marked fragmentation of the current US real estate market. The impact of high interest rates on first-time homebuyers and price-sensitive consumers is more pronounced, while the impact on high-income households is relatively limited.

On the supply side, as of July, the number of new homes for sale in the US market fell 1.6% year over year to 488,000 units. At the current rate of sales, this inventory is equivalent to about 9.6 months of supply, indicating that homebuilders still need time to digest previously accumulated inventory.

While inventory remains at a high level, builders have taken the initiative to control the speed at which new homes are being started and are putting more effort into selling existing homes for sale. This also explains why homebuilders are willing to boost deals through preferential prices and incentives to buy homes, even when faced with higher land, construction, and financing costs.

From a regional perspective, there was a clear difference in new home sales performance in the US in July. In the southern region, the largest home buying region in the US, new home sales fell 13% month-on-month, and annualized sales fell to 383,000 units. Sales in the Midwest region also fell sharply by nearly 43%, to the lowest level since 2012. In contrast, new home contract sales have increased in the western and northeastern regions of the US.

As the real estate market cools down, American consumers' confidence in the future state of the economy is also declining.

Additional data released by the US Economic Council on Tuesday showed that consumer confidence fell to its lowest level since the beginning of this year in August, and consumers' views on future employment and income prospects became more pessimistic.

For the housing market, employment and income expectations are particularly important. Buying a home usually means bearing a long-term, large financial burden. If consumers lack confidence in future income stability, they may delay their home purchase plans even if the builder provides price cuts or loan concessions.

Overall, new home sales in the US fell 10.5% in July to an annualized rate of 607,000 units, which not only fell short of market expectations, but also fell to the lowest level in six months. In a context where mortgage interest rates remain high, housing affordability is limited, and consumer confidence weakens, builders' price cuts and concessions are not enough to completely reverse weak demand.

However, the new home sales data itself fluctuates greatly from month to month. The US government said that the 90% confidence range for this change in sales is between a 24.5% decline and a 3.5% increase, so the monthly data still needs to be combined with the trend of the next few months to further determine the true trend of the US housing market.