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 percent 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. While sales were up in May, the 696,000 annual pace was 5.9% lower than a year ago.
Moreover, the months’ supply measure is elevated at 7.7, but existing home inventory remains very tight and this supports demand for new construction.
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. Inventory should slow in the months ahead as builder slow permit growth in response to weakening housing demand, particularly in significantly challenged housing affordability markets.
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. 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.
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.