In April, the housing market witnessed a drop in sales of newly built homes, primarily attributed to the rise in both prices and interest rates. The U.S. Census reported that sales of newly constructed homes fell by 4.7% compared to March and saw a larger decline of 7.7% from the previous year.

One of the significant contributing factors to this decline is the increase in mortgage rates. The average rate on the 30-year fixed mortgage, which stood in the high 6% range at the end of March, escalated to 7.5% in April. As a result, potential homebuyers found it more challenging to afford new homes, impacting the sales figures. The monthly reading reflects signed contracts during the month, indicating people's decisions based on the prevailing rates.

Moreover, the median price of a new home sold in April soared to $433,500, representing a 4% jump from April 2023. Developers attributed this increase partially to the mix of homes being sold, with a focus on the higher end of the market. Buyers at this price range are less influenced by mortgage rates and often make cash purchases. Despite the slowdown in sales, builders have been unable to lower prices due to rising costs related to land, labor, and materials.

Large production builders like D.R. Horton and Toll Brothers, however, reported strong earnings in their latest quarters, surpassing expectations. They cited growing demand driven by the limited supply in the resale market. Even so, the overall new build industry still falls short of the five-year average pace. Big builders have been able to boost sales by reducing mortgage rates, but this can be mainly attributed to their size and resources.

A new index launched by the National Association of Home Builders and Wells Fargo revealed that in the first quarter of 2024, 38% of a median household income was required to make the mortgage payment on a median-priced new single-family home nationwide. In contrast, low-income families, defined as those earning just 50% of the area's median income, would have to allocate 77% of their earnings to afford the same new home.

The housing market continues to witness the rise in prices for both new and existing homes due to the lack of supply. Particularly in the lower end of the resale market, there is a scarcity of available properties for sale. Although the number of newly constructed homes has increased by 12% compared to the previous year, these homes come with a price premium that is often unattainable for lower-income buyers.

Robert Dietz, chief economist at the National Association of Home Builders, emphasized that the shortage of roughly 1.5 million homes nationwide is the primary cause of the growing housing affordability challenges. Dietz urged policymakers at all levels of government to enact changes that would encourage more home construction. This could include expediting permit approval times, investing in skilled labor training, and addressing issues in the building material supply chains.

As the housing market grapples with affordability issues, industry experts are calling for swift action to alleviate the ongoing challenges faced by prospective homebuyers. Policymakers and industry stakeholders must collaborate to find solutions that will enable the construction of more homes and address the pressing issue of housing supply shortage.

Disclaimer: The information presented in this article is based on the provided text and does not represent real-time housing market data or current economic conditions.