May New Home Sales Rebound

New home sales rebounded in May from a sluggish April, HUD and the Census Bureau reported Friday.

The report said new single-family home sales increased to 610,000 units, seasonally adjusted, a 2.9 percent increase from April’s revised 593,000 and nearly 9 percent higher than a year ago (560,000).

Regionally, increases in the South and West more than offset declines in the Northeast and Midwest. In the South, sales rose by a solid 6.2 percent to 360,000 units, seasonally adjusted, from 339,000 in April and improved by 15 percent from a year ago. In the West, sales jumped by 13.3 percent in May to 162,000 units from 143,000 units in April and improved by 14.1 percent from a year ago.

In the Northeast, sales fell by 10.8 percent to 33,000 units in May from 37,000 units in April and were unchanged from a year ago. In the Midwest, sales plunged by 25.7 percent to 55,000 units in May from 74,000 units in April and fell by 23.6 percent from a year ago.

The median sales price of new houses sold in May jumped to $345,800. The average sales price rose to $406,400. Inventories, however, continued to lag, at just 268,000 units, representing a 5.3 month supply at the current sales rate.

Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C., called the report “fairly strong and fairly clean,” noting upward revisions to the past three months’ data were also encouraging.

“While the revision data bring new home sales more in sync with home builder confidence, the absolute level of new home sales still pales in comparison to its historic norms,” Vitner said. “We do not expect new home sales to revisit the highs hit during the housing boom anytime soon. Today’s housing market remains a shadow of its former self and builders and developers have shrunk their businesses to meet this new marketplace.”

Vitner said the housing market appears to have a “fairly low ceiling,” given constraints on lot development, the supply of construction workers and credit constraints facing many first-time buyers.

“The net result has been a very gradual recovery that has so far been more focused on the high end of the market, where builders tend to enjoy wider profit margins,” Vitner said. “The slow motion recovery in new home sales has made the sector more susceptible to quirks in the seasonal adjustment process, which has been particularly apparent in recent months. New home sales have been knocked around quite a bit this year by unseasonably mild winter weather, which boosted sales earlier this year. In addition, this year’s late Easter pulled sales forward into March and then weakened them in April.”

Vitner also noted inventories of completed homes rose slightly in May but remain near record lows at just 62,000 homes, “suggesting that new home construction will continue to strengthen during the second half of the year.”

Ralph McLaughlin, chief economist with Trulia, San Francisco, said May’s new home sales numbers “should put to rest any concern that last month’s decline was a sign of waning demand, as buyers continue to snap up new homes at near post-recession highs.”

“Despite May’s good news, new home sales still have a long way to go to reach historic norms,” McLaughlin said. “When taking into account the U.S. population, new home sales are still about 69% of the long-run average. However, we think this reflects fundamental supply, rather than demand, problems in the housing market, as buyers look for any inventory relief they can get.”

McLaughlin noted the 12-month rolling total of new home sales compared to the 50-year average “looks like there’s a lot more room to grow when taking into account the size of the U.S. population.”