May New Home Sales Disappoint

New home sales tumbled by nearly 6 percent in May—and the report revised downward the previous three months’ statistics, HUD and the Census Bureau reported Wednesday.

The report said sales of new single‐family houses in May came in at a seasonally adjusted annual rate of 769,000, 5.9 percent below the revised April rate of 817,000. From a year ago, however, sales rose by 9.2 percent.

Regionally, results were muddled. The largest region, the South, saw a 14.5 percent drop in new home sales in May to 432,000 units, seasonally annually adjusted, from 505,000 units in April. From a year ago, however, sales in the South improved by 3.1 percent.

In the West, sales rose by 6.7 percent to 190,000 units in May, seasonally annually adjusted, from 178,000 units in April and improved by 6.7 percent from  a year ago. Sales in the Midwest were unchanged at 95,000 units in May and improved by 28.4 percent from a year ago. Sales in the Northeast jumped by 33.3 percent in May to 52,000 units from 39,000 units in April and improved by nearly 58 percent from a year ago.

“The recent pullback in new home sales reflects intensifying affordability challenges for first-time home buyers and growing frustration about the lack of new and existing homes available for sale,” said Mark Vitner, Senior Economist with Wells Fargo Economics, Charlotte, N.C. “While we remain optimistic about housing demand for the year as whole, we may see a few more months of underwhelming sales. Several builders have reported lighter prospective buyer traffic in recent weeks, particularly in what had been some of the hottest housing markets in the South and Mountain West.”

Vitner noted the pullback in new home sales likely reflects intensifying affordability concerns. “The median price of a new home has surged 18.1% over the past year to $374,400,” he said. “The price spike reflects the resurgence in demand as the economy reopened, combined with low inventories of new and existing homes and soaring building materials prices. We suspect the spike in home prices is having a disproportionate impact on buyers in the South.”

The report said the median sales price of new houses sold in May 2021 rose to $374,400; the average sales price was $430,600. The seasonally adjusted estimate of new houses for sale at the end of May rose to 330,000, representing a supply of 5.1 months at the current sales rate.

Vitner said lack of completed homes available for sale is also likely a key reason why prospective buyer traffic has slowed. With the reopening of the economy broadening and economic growth accelerating, we expect demand for new and existing homes to remain strong this year and look for prospective buyers to come back into the market once supply-side issues subside a bit this summer and fall.