LIVE MARKETS-Betting against the house: New home sales plunge, mortgage rates add some heat

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BETTING AGAINST THE HOUSE: NEW HOME SALES PLUNGE, MORTGAGE RATES ADD SOME HEAT

A housing data duet showed the sector limping along under the burden of elevated mortgage rates and lingering uncertainties over the economic effects of the Trump administration's trade policies.

The sales of newly constructed single-family homes USHNS=ECI plunged by 13.7% in May to 623,000 units at a seasonally adjusted annualized rate (SAAR).

That's 10.1% shy of the 693,000 consensus.

The report echoes the National Association of Home Builders' most recent housing market index, which showed homebuilder sentiment dropping a 2-1/2 year low as builders cut prices to lure buyers from the sidelines.

"While builder incentives may prevent a steep decline in new home sales, we see no real upside for sales in the months ahead given our forecast for mortgage rates to remain elevated and the labor market to soften," says Nancy Vanden Houten, lead U.S. economist at Oxford Economics.

Delving into the Commerce Department's report, by region, a 21.0% drop in new home sales in the south dragged the total down along with smaller declines in the Midwest and the West. Together, they handily offset a 32.1% increase in the Northeast.

At last month's sales pace, it would take 9.8 months to sell every new home on the market, the highest that metric's been since September 2022, and down from 8.3 months in April. The average sale price of freshly built single-family homes rose by 3.0%.

"The buildup of unsold, completed inventory will weigh on single-family housing starts," Houten adds.

Data released earlier today showed that the cost of financing home loans ticked a bit higher last week, according to the Mortgage Bankers Association (MBA).

The average 30-year fixed contract rate USMG=ECI heated up by 4 basis points to land at 6.88%.

That was too rich for potential buyers. Demand for loans to purchase homes USMGPI=ECI, considered among the most forward-looking housing indicators, inched 0.4% lower.

But a 3.0% increase in refi applications USMGR=ECI, which accounted for 38.4% of total mortgage activity, pushed aggregate demand 1.1% higher.

"Applications increased slightly overall driven by FHA refinances, but conventional applications saw declines over the week," writes Joel Kan, deputy chief economist at MBA. "The average loan size for purchase applications declined to $436,300, the lowest level since January 2025, driven by decreasing conventional purchase loan sizes."

While the 30-year fixed rate has taken a roller coaster ride over the last 12 months, is now just 5 basis points below where it sat the same week a year ago.

Over that same time frame, purchase and refi demand have grown by 11.8% and 29.1%, respectively.

But all economic indicators are backward-looking.

For a look at where investors expect the sector to be six months to a year down the road, we turn to the stock market.

For much of the post-pandemic era, housing-related stocks - the S&P 1500 Homebuilding index .SPCOMHOME and the Philadelphia SE Housing index .HGX - have handily outperformed the broader market.

But that relationship appears to have capsized in early November.

The SPCOMHOME and HGX indexes are currently down 9.4% and 3.7%, respectively, over the last year, while the benchmark S&P 500 .SPX has advanced 11.4% during that time.

(Stephen Culp)

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