Friday’s new residential sales report from the U.S. Census Bureau brought some surprisingly good news as new single-family home sales jumped 10.7% month over month to a seasonally adjusted annual rate of 696,000 units in May.
The gain was very much an unexpected development, with economists surveyed by Reuters projecting that new-home sales would fall to a 588,000-unit pace. Year over year, sales dropped by 5.9%, but April’s sales pace also saw a bump, receiving an upward revision to 629,000 units from the previously reported 591,000.
Wells Fargo economist Mark Vitner said that the bank’s researchers went against the grain in predicting the now-realized sales increase.
“We had forecast an upside surprise this month — with our point estimate at 703,000 units, or 113,000 units above consensus,” he said. “We rarely deviate from the consensus by that much but saw something unique in the data. There was a surge in completions of single-family homes in May reported in the housing-starts data earlier this month, which we believe was driven by buyers racing in to lock in mortgage rates before rates rose even higher.
“Sales of new homes under construction accounted for the largest share of May’s increase, although sales of homes where construction has not yet started and sales of completed homes also rose last month.”
Although the sales-activity increase was a surprise, new-home prices actually eased somewhat, with the median price of a new home receding by 1.2% during the month to $449,000. With rates on the rise and demand softening thanks to waning affordability, some homebuilders have started to offer discounts to entice more buyers. But this still left new homes 15% above their median prices at the same time last year.
Moving forward, even experts who predicted the gain are less rosy on the months ahead.
“While we were confident the May new-home sales would top expectations, we also believe the May data will likely prove to be the last hurrah for new-home sales,” Vitner said. “The surge in sales to lock in mortgage rates appears to have pulled sales forward.”
“Though new-home sales registered a solid increase in May, we expect sales to decline in June following the Fed’s action to significantly raise interest rates in an effort to cool the economy and ease inflation,” said Jerry Konter, chairman of the National Association of Home Builders. “High construction costs and rising mortgage rates are pricing many buyers out of the market. Only 10% of new homes were priced below $300,000 in May, compared to 23% a year ago.”
