New Home Sales Drop 11% in May

(Illustration courtesy of U.S. Census Bureau)

New home sales fell significantly in May–to the weakest pace since late 2023, the U.S. census Bureau reported yesterday.

New home sales fell 11.3% to a 619,000-unit pace in May, the New Residential Sales report said.

“The new home market has softened recently alongside higher mortgage rates, increased availability of existing homes and a more moderate pace of economic growth,” Wells Fargo Economics said in a written analysis. “Although these factors are likely to remain as a constraint moving forward, an uptick in mortgage applications for purchase so far in June suggests that the small dip in mortgage rates over the past several weeks will translate to a slightly stronger pace of home sales in coming months.”

Selma Hepp, Chief Economist with CoreLogic, said home sale reports continue to provide a “mixed bag of data” concerning the nation’s economic health. “On the one hand, inventory is up nationally, but not meaningfully in cities with big employment opportunities, such as Seattle, Boston and New York,” she said. “These areas also tend to have households with higher levels of home equity and, therefore, less likely to sell in the current higher-for-longer interest rate environment.”

Hepp noted the mixed economy might drive the Fed to cut rates sooner than later, as middle and low-income households continue to struggle.

“Looking further ahead, the Federal Reserve appears poised to initiate a rate cutting cycle later this year, which should help mortgage rates fall further,” Wells Fargo Economics said. “While lower rates likely will help improve affordability conditions for buyers and make pricing incentives less of an imperative for home builders, a deteriorating macroeconomic backdrop marked by higher unemployment and slower income growth will likely continue as headwinds for the new home market.”