After posting four consecutive monthly declines on rising mortgage rates and worsening affordability conditions, new home sales posted a solid gain in May as some buyers rushed into the market in advance of the Federal Reserve’s June interest rate hike.
Sales of newly built, single-family homes in May increased 10.7% to a 696,000 seasonally adjusted annual rate from an upwardly revised reading in April according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. New home sales are down 10.6% in 2022 on a year-to-date basis.
“Though new home sales registered a solid increase in May, we expect sales to decline in June following the Fed’s action to significantly raise interest rates in an effort to cool the economy and ease inflation,” said Jerry Konter, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Savannah, Georgia. “High construction costs and rising mortgage rates are pricing many buyers out of the market. Only 10% of new homes were priced below $300,000 in May, compared to 23% a year ago.”
“While sales were up in May, the 696,000 pace was 5.9% lower than a year ago and new home sales on a year-to-date basis are down 10.6% thus far in 2022,” said NAHB chief economist Robert Dietz. “Moreover, the months’ supply measure is elevated at 7.7, but existing home inventory remains very tight and this supports demand for new construction.”
A new home sale occurs when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the May reading of 696,000 units is the number of homes that would sell if this pace continued for the next 12 months.
New single-family home inventory remained elevated at a 7.7 months’ supply, up 42.6% over last year, with 444,000 available for sale. However, only 8.3% of new home inventory is completed and ready to occupy. The remaining have not started construction (25.9%) or are currently under construction.
The median sales price dipped to $449,000 in May from $454,700 in April but is up 15% compared to a year ago, due primarily to higher construction and development costs, including materials.
Regionally, on a year-to-date basis, new home sales fell in all four regions, down 3.8% in the Northeast, 21.7% in the Midwest, 12.3% in the South and 2.2% in the West.