May New Home Sales Drop Despite Low Rates, Home Builder Discounts
New home sales in May fell by nearly 8 percent from April and by nearly 4 percent from a year ago, HUD and the Census Bureau reported yesterday.
The report said sales of new single‐family houses in May fell to a seasonally adjusted annual rate of 626,000, 7.8 percent below the revised April rate of 679,000 and 3.7 percent lower than a year ago (650,000).
Regionally, large drops in the Northeast and West more than offset modest gains in the South and Midwest. In the West, sales fell by nearly 36% in May to 125,000 units, seasonally annually adjusted, in May from 195,000 units in April and fell by 17.2% from a year ago. In the Northeast, sales fell by 17.2% to 28,000 units in May from 34,000 units in April and fell by 15.2% from a year ago.
In the South, sales posted a nearly 5% gain to 389,000 units, seasonally annually adjusted, in May from 371,000 units in April and improved by 1.3% from a year ago. In the Midwest, sales rose by nearly 7 percent in May to 84,000 units from 79,000 units in April and improved by 2.4% from a year ago.
Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C., said the May decline came despite sliding mortgage rates and a pickup in purchase application activity. “That noted, the pace of new home sales remains solid and May’s weak report overshadows an improving overall trend,” he said. “Sales are running at a 670,000 unit pace over the past three months, well ahead of the 615,000 unit pace averaged throughout 2018.”
Vitner noted monthly data tend to be “noisy” and are prone to large revisions. “We expect lower mortgage rates to continue to support the steadily improving trend in new home sales in coming months; however, a surge in activity is unlikely.”
HUD/Census reported the median sales price of new houses sold in May fell to $308,000; the average sales price fell to $377,200. The seasonally adjusted estimate of new houses for sale at the end of May stood at 333,000, representing a supply of 6.4 months at the current sales rate.
“Lower new home prices compared to last year reflect steep discounts offered by builders, which has helped bring down rapidly rising inventories,” Vitner said. “That noted, inventories remain significantly lower than the elevated level experienced in the second half of last year.”
Vitner added home builders have responded to strengthening entry-level demand and shifted their focus to building more affordable product. “However, rising construction costs, especially for qualified labor, make building entry-level homes increasingly a challenge,” he said. “A scarcity of new home construction at more affordable price points is likely impeding overall activity.”
