Boosted by the persistent scarcity of existing homes for sale, May saw the highest level of new single-family home sales in 15 months, according to data from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.
New home sales vaulted 12.2% month over month to reach a seasonally adjusted annual rate of 763,000 units, comparing favorably to April’s downwardly revised rate of 680,000 units. Last month’s pace is 20% faster than the new home sales rate in May 2022.
The surge in sales on both a monthly and yearly basis reflects a small and ongoing boom in new home sales that began earlier this year, fueled by the dearth of resale supply, pent-up homebuyer demand and proactive builders, many of whom are still enticing buyers into the fray with incentives such as discounts and buydown points. Many experts don’t view the mix as a sustainable one and, indeed, economists polled by Reuters predicted that May new home sales would recede to a 675,000-unit pace. Thus far, however, the formula is helping new home sales to thrive, and the share of total inventory comprised of new homes remains high.
“The lack of resale homes available for sale, at just a three months’ supply, is supporting demand for newly built homes,” said Robert Dietz, chief economist for the National Association of Home Builders (NAHB). “New home inventory was 31% of total inventory in May. Historically, it is typically 10% to 15%. Further, the pace of resales is down 20% from a year ago while the rate of new home sales is up 20% from a year ago.”
New single-family home inventory was at 428,000 units in May, down 2.9% annually. That equates to 6.7 months of supply at the current sales pace.
New home sales even rose in May in the face of upward movement in mortgage rates, which grew to 6.57% by the end of the month, according to Freddie Mac. But in a bit of good news for potential homebuyers, the median new home price in May was $416,300, up from April but down 7.6% year over year. The aforementioned discounts offered by builders are helping to move new home prices downward, even as construction firms are still wrangling with material, land and labor costs.
“While builders continue to grapple with elevated construction costs, an encouraging sign is a big gain in home sales priced in the $200,000 to $300,000 price range,” said Alicia Huey, chair of the NAHB. “In May 2022, just 5,000 homes sold in this range and that total increased to 12,000 in May 2023.”