New Home Sales Fell Below Expectations in May

The U.S. Census Bureau reported on Wednesday, after the opening bell, that new home sales in May fell 5.9% month-over-month (+9.2% YoY) to a seasonally adjusted annual rate of 769,000. The reading was below expectations for a seasonally adjusted unit rate of 865,000. Adding to the weakness, April's estimate was revised lower, to a 817,000 unit rate, down from 865,000 previously reported.

Of the 769,000 new homes sold during the period, 276,000 have yet to begin construction, while 305,000 remain under construction. These two numbers are useful to understand, because the stage of construction can be helpful for two reasons. First, it can indicate additional work to come for labor forces tied to the home building market, and second, it can point to the potential for additional sales to come for those companies that supply building materials for new homes.

Digging deeper, month-over-month sales advanced 33.3% in the Northeast (+57.6% YoY), was unchanged in the Midwest (+28.4% YoY), fell 14.5% in the South (+3.1% YoY), and climbed 6.7% in the West (+6.7 YoY).

As for costs, the average selling price in May increased to $430,600 from $420,900 in April. The median sales price advanced to $374,400 from $365,300 in April.

Inventories, at the current rate of sales currently sit at 5.1 months, on a seasonally adjusted basis, up from the 4.6-month level seen in April, however, still below the 6.0-month supply most view as balanced.

Additionally, as members know, price tag is only one factor impacting affordability. The other major influence is mortgage rates as these directly impact the monthly burden of purchasing a home. On that note, mortgage rates sat at 2.93% for a 30-year fixed rate mortgage, as of June 17, according to Freddie Mac (here).

All in, the reading was weaker than expected, however, we are encouraged by the uptick in inventories and downtick in mortgage rates as the former should provide some relief to the rising list prices (recall, supply has been the primary headwind putting upward pressure on prices), while the latter will help make monthly payments more affordable.

For members interested in digging deeper, please see the official release here.

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