The housing market in the US faced a significant downturn in May as sales of newly built homes dropped due to elevated mortgage rates. The slump in new home sales, which account for about 10% of the market, fell by 11.3% to 619,000, marking the steepest monthly decline since September 2022. This decline was exacerbated by the fact that mortgage rates had reached their highest level of the year in early May, causing potential buyers to reconsider their purchases.
The impact of high interest rates on homebuilders was evident as the sentiment among US homebuilders soured for the second consecutive month. The construction of new homes also suffered, with housing starts falling by 5.5% to the lowest level since 2020, and building permits declining by 3.8%. Additionally, the persistent housing shortage and elevated mortgage rates have led to high home prices, making it challenging for many Americans to afford homes in the current market. These factors have also posed a challenge for the Federal Reserve in its battle against inflation, as shelter costs remain high despite a general easing in overall inflation.
In response to the housing crisis, the Biden administration announced funding initiatives to address the affordability of housing in the country. Treasury Secretary Janet Yellen unveiled a $100 million funding plan to support affordable housing financing, while Vice President Kamala Harris and Housing and Urban Development Acting Secretary Adrianne Todman announced $85 million in grants to lower housing costs. These initiatives aim to alleviate the burden of high housing costs on American households and provide support to those struggling in the tough housing market.
