The report came from the Census Bureau of the Department of Commerce, providing more evidence that the country's real estate market is experiencing a massive depression. It also strongly suggests that the Federal Reserve's aggressive monetary policy tightening campaign to slow down the economy to tame inflation is achieving more than the desired results in the housing market.
"The Fed is getting what it wants," noted Matthew Walsh, an economist for Moody's Analytics. "The housing market needed to cool, and higher interest rates were the only thing that was going to accomplish that." (Related: 30-year fixed mortgages surge above 6% for the first time since 2008 as market reacts to Fed rate hikes.)
Ian Shepherdson, economist and founder of housing market research consultancy firm Pantheon Macroeconomics predicted that new single-family home sales for June would drop from 590,000 to 550,000 units. The latest data from the Census Bureau paints an even grimmer picture.
According to government data, new single-family home sales dropped by 12.6 percent in July, reporting a new record low after reaching its lowest level since April 2020.
The June estimate of new single-family houses sold was revised down to 585,000, and sales for July were down at a seasonally adjusted annual rate of 511,000 units. On a year-to-year basis, sales dropped by 29.6 percent.
The median sale price in July was at $439,400, a more than eight percent increase from June's median sale price of $402,400, but lower than May's record-high median of $449,000. The average sales price for July was $546,800, higher than both June's $456,800 and May's $511,400.
Analysts pointed out that new home sales are not falling because there are a decreasing number of potential buyers. In fact, they noted that there are more people in the U.S. who are looking to buy their first home. But record home prices, soaring mortgage rates and unrelenting inflation are preventing many from entering the market.
"The pullback in new home sales activity has been significant over a relatively short time frame," said Alan Ratner, senior homebuilding analyst for housing market research and consultancy firm Zelman & Associates.
"In a matter of eight months, the annualized pace of new home sales activity has plummeted nearly 40 percent, while current activity is down more than 50 percent from the cycle peak set in Aug. 2020," Ratner added.
David Auerbach, managing director for real estate investment company Armada ETF Advisors, noted that mortgage interest rates "have almost doubled since the beginning of this year."
"With mortgage rates going from three percent to just under six percent, homebuyers have seen the cost of that mortgage and initial down payment rise drastically," he said.
The 30-year fixed rate mortgage is currently averaging 5.13 percent, up from 3.22 percent at the beginning of the year, according to data from mortgage finance agency Freddie Mac.
Auerbach added that the country is also having high rates of employment now, so demand for housing isn't dropping. "Job formation leads to household formation," he said, pointing out that demand is still very high.
However, new and affordable single-family housing in America has all but vanished as the Fed continues to increase interest rates in the mistaken belief that it will tackle inflation. The Fed is expected to discuss increasing interest rates by another 75 basis points (0.75 percent) during its meeting in September. Auerbach noted that this will likely lead to mortgage rates getting even more expensive.
Learn more about the downturn in the American economy at MarketCrash.news.
Watch this clip discussing how potential homebuyers are walking away en masse from their first housing purchases as the economic reality of the recession sets in.