A lack of existing inventory coupled with solid consumer demand helped to boost new home sales in May to their highest level since February 2022.
Sales of newly built, single-family homes in May increased 12.2% to a 763,000 seasonally adjusted annual rate, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.
Demand for new homes is strengthening because of a lack of existing home inventory. There is only a 3-months’ supply of existing single-family homes on the market. New home inventory was 31% of total inventory in May. Historically it is typically 10% to 15%. As a result, the pace of resales is down 20% from a year ago, while the rate of new home sales is up 20% from a year ago.
And while builders continue to grapple with elevated construction costs, an encouraging sign is a big gain in home sales priced in the $200,000 to $300,000 price range. In May 2022, just 5,000 homes sold in this range. That total increased to 12,000 in May 2023.
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 763,000 units is the number of homes that would sell if this pace continued for the next 12 months.
New single-family home inventory in May was 428,000, down 2.9% compared to a year ago. Inventory is down to a more balanced 6.7 months’ supply at the current building pace, despite tight existing home supply conditions. A measure near a 6 months’ supply is considered balanced.
Sales of homes not started are up 90% from a year ago, rising from 10,000 in May 2022 to 19,000 in May 2023. This suggests gains for single-family housing starts in the months ahead.
The median new home sale price in May was $416,300, down 7.6% compared to a year ago.
Regionally, on a year-to-date basis, new home sales are up 0.8% in the Northeast and 1.6% in the South. New home sales are down 2.5% in the Midwest and 20.7% in the affordability-challenged West.