US new home sales have tumbled to a 2-year low as the market slumps. 4 Wall Street analysts weigh in on what's next for house prices.

• New home sales in the US hit a two-year low in June, in the latest sign of the rapid slowdown in the housing market.
• Some analysts are expecting prices to fall rapidly in the coming months, while others merely expect increases to slow.

Sales of new US homes dropped much more than expected in June to a two-year low, in the latest sign of a sharp cooldown in the housing market.

Soaring mortgage costs — as the Federal Reserve hikes interest rates — have combined with sky-high house prices to deter people from buying new properties.

Purchases of new single-family homes slumped 8.1% in June to a seasonally adjusted annual rate of 590,000, the Department of Housing said on Tuesday. That below a downwardly revised 642,000 in May and well below economists' expectations of 655,000.

Mortgage rates have more than doubled over the last year, as the Fed has put up borrowing costs in an effort to tackle red-hot inflation. Existing home sales have been falling since February.

Almost all analysts expect a slowdown in the US housing market. However, some are merely expecting price growth to slow, while others are predicting sharp falls.

Ian Shepherdson of Pantheon Macroeconomics

Pantheon Macro chief economist Ian Shepherdson is highly pessimistic about the housing market. On Tuesday, he said that "the next few months will be very tough."

In a note after the new home sales data, Shepherdson said new home sales have further to drop and will likely drop to around 400,000 by the fall.

He also noted that new home prices are already declining relatively rapidly month-on-month, and said he expects the trend to continue.

"In a market with rapidly falling demand and soaring inventory, the trend in prices is only going to move in one direction."

Daniel Silver of JPMorgan

"The June new home sales report disappointed and continued what has been a downbeat run," Daniel Silver, an analyst at JPMorgan, said in a note to clients. He said higher interest rates are weighing on housing activity.

Silver said JPMorgan thinks the rise in house prices should slow in the coming months, although he stopped short of predicting an outright drop.

"As demand for housing has come off, we think the rate of home price appreciation should cool, and the weakening in the data on new home sale prices is somewhat consistent with that idea."

Jeffrey Roach of LPL Financial

The strength of the housing markets varies from region to region in the US, said Jeffrey Roach, chief economist at major broker LPL Financial.

"New home sales rose in the Midwest but fell the largest in the West as the labor market continues to churn," he said. "As workers change jobs and adjust to the hybrid working environment, housing will likely weaken further in areas with high cost of living."

That said, he predicted there is "more downside to go in housing" in the US in general.

BMO Capital Markets

BMO's Robert Kavcic zoomed in on inventory — that is, the number of unsold homes on the market — which he said is now running at the highest since 2009.

"As a result, prices are now starting to move lower, at least for new homes," he said.

His colleague, senior economist Sal Guatieri, said BMO expects house prices to drop in the coming months, even if the delayed Case-Shiller index showed they were still rising in May.

"We see nationwide prices falling about 10%, back to 2021 levels," he said in a note to clients. "Hot spots (literally) Tampa and Miami could face larger pullbacks."