US New Home Sales Rise in June, but Affordability Concerns Persist

Sales of new U.S. single-family homes saw an increase in June, reversing a two-month decline, though higher mortgage rates and prices are still impacting potential buyers. The Commerce Department's Census Bureau reported that new home sales reached a seasonally adjusted annualized rate of 628,000 units last month, a 1.6% increase from May's revised pace.

This figure exceeded economists' expectations, who had predicted a sales pace of 610,000 units. Despite the monthly uptick, new home sales were down 5.6% compared to June of the previous year. Sales of new homes, which are recorded when a contract closes, represent a smaller portion of the overall U.S. housing market and can fluctuate significantly from month to month.

The median price for a new home in June was $398,300, marking a 2.7% decrease from the same period last year. Affordability remains a significant challenge in the housing market, largely due to steep borrowing costs.

The average interest rate for a 30-year fixed-rate mortgage, the most common type of home loan in the U.S., has reached its highest point since August of the previous year. This trend is attributed to inflation concerns among Federal Reserve officials and broader bond market movements. Data from Freddie Mac indicated the national average 30-year mortgage rate climbed to 6.58% this week, while the Mortgage Bankers Association reported a rate of 6.69% for the week ending July 17, both representing 11-month highs.

Mortgage rates have increased by approximately 0.60 percentage points since late February, coinciding with geopolitical events that contributed to rising global oil prices and broader inflation. Inflation, as measured by the Federal Reserve's preferred metric for its 2% target, is currently running at roughly double that pace. Bond markets are anticipating a response from the central bank, with futures markets indicating a high probability of interest rate hikes in the coming months.

The Federal Reserve is scheduled to hold a policy meeting next week. While the chance of a rate hike at this specific meeting is estimated at about one in three, the probability rises to nearly 100% for the subsequent meeting in September. Yields on 10-year Treasury notes, a benchmark for 30-year mortgage rates, have risen by a quarter of a percentage point this month, nearing their highest levels in 18 months.