New home sales plummeted in April to their lowest since the onset of the pandemic amid a steep rise in mortgage rates and elevated prices.

We expect sales to drop further in the coming months as a result of two potential 50-basis-point interest rate hikes from the Federal Reserve in June and July.

Sales of new single-family homes fell 16.6% on the month to an annualized 591,000, according to data from the U.S. Census Bureau, the lowest level since April 2020. An earlier market forecast pointed to a 1.8% drop in new home sales.

Sales have declined sharply for the fourth straight month, dropping 30% in total since January. This was driven by a rapid rise in mortgage rates since the start of the year. According to Freddie Mac, the rate on a 30-year fixed-rate mortgage has jumped from 3.11% to 5.25% since the start of the year, an increase of 68.8%.

Buyers have pulled back from entering the market. As a result, the sales rate has slowed to a point that there were nine months’ worth of new home supply in April at the current selling pace, the highest since May 2010.

On a non-seasonally adjusted basis, median home prices continued to reach a record high at $450,600 in April. However, price growth year-over-year fell to 19.6% on the month from 21% in March. That suggests a certain level of seasonal factor in play affecting prices, which often peak in the summer.

Also, higher prices while demand is cooling reflect the continuing problem with rising building material prices, which has caused builders to raise prices to protect their profit margins. The sharp drop in sales was in line with recent data on builders’ sentiment, which also fell significantly over rising costs and lower demand.

New home sales account for roughly 10% of total housing sales and are calculated when contracts are signed. Sales dropped in all four major regions in April.