U.S. new home sales surge in May for third straight month

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The numbers: Sales of newly built homes in the U.S. surged in May, amid a serious shortage of homes for sale in the resale market. 

Sales jumped for the third month in a row. The increase in May is the largest since February 2022.

The strength in new home sales was across the nation, led by the Northeast and the West. Overall, new home sales have been higher as home builders are one of the few players offering inventory for home shoppers. 

U.S. new home sales rose 12.2% to an annual rate of 763,000 in May, from a revised 680,000 in the prior month, the Commerce Department reported Tuesday. 

The number is seasonally adjusted, and refers to how many homes would be built over an entire year if builders continue at the same pace every month.

The jump exceeded expectations on Wall Street. Economists had forecast new home sales to total 675,000 in May.

The data from April was revised significantly. New home sales rose to a revised 680,000 in April, compared with the initial estimate of a 4.1% increase to 683,000.

The new home sales data are volatile month-on-month and are often revised.

Key details: The median sales price of a new home sold in May fell to $416,400 from the month before. 

The supply of new homes for sale fell 11.8% between April and May, equating to a 7-month supply. 

Regionally, the Northeast and West led the nation in new home sales, posting increases of about 17% each.

Overall, sales of new homes are 20% compared to last year.

Big picture: The housing market may be stuck in a rut over the lack of inventory and high mortgage rates, but home builders are thriving as buyers flock to new construction where they are finding more options.

Builder confidence over future sales is high, as homeowners continue to hold on to ultra-low mortgage rates they refinanced into during the pandemic. Construction of new homes in the U.S. jumped nearly 22% in May 2023.

What are they saying? “Conditions are in place for further increases in sales despite mortgage interest rates being significantly higher over the past fifteen months than had been the case,” Richard Moody, chief economist at Regions Financial Corporation, wrote in a note.

“As we’ve argued from the start of that increase in mortgage rates, there remains a considerable deal of pent-up demand for home purchases, reflecting the degree to which the market has been undersupplied for the past decade-plus,” he explained.

And with “inventories of existing homes for sale being so extraordinarily low, more of that demand has been funneled to the market for new homes, and builders have been in position to take advantage,” Moody wrote.

The National Association of Home Builders noted that new homes made up around 31% of total inventory of homes in May. Historically, new homes make up about 10 to 15% of total inventory.

Market reaction: Stocks

were up in early trading on Tuesday. The yield on the 10-year Treasury note rose above 3.73%.

Shares of builders, including D.R. Horton, Inc.
Lennar Corp
PulteGroup Inc.
and Toll Brothers Inc.
were mixed up the morning trading session.

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