According to the latest Census Data from May, sales of new single-family homes during the Month were 10.7 percent higher than the revised April figures, despite record low consumer sentiment. In April, there were 629,000 new home sales, while that figure rose to 696,000 in May. May 2022’s new home sales, while unexpectedly high, were a notable drop from May 2021’s estimate of 740,000.
Sales didn’t grow uniformly throughout the United States though. The West and the South drove new home sale growth, while the Midwest and Northeast experienced monthly declines.
The Census reports that new houses in May 2022 sold for a median price of $449,000. Meanwhile, The National Association of Realtors (NAR) reported that existing homes sold in May went for a median of $407,000.
Data from NAR found that existing home sales in May fell to a two-year low, equivalent to sales during the early days of the pandemic. How is it that existing home sales cratered at a time when new home sales increased more than 10%? The answer is likely an increasing supply of new homes entering the market.
The Commerce Department reported that new home supply was at a 14-year high in May, which clearly helped push new home sales higher in the month. However, America still has a significant housing shortage of up to 6.8 million residential units. Without addressing the nation’s severe housing deficit, there won’t be enough residential supply to meet the current level of demand.
May’s increase in new home sales after four straight months of decline was unexpected but is likely a partial product of homebuyers anticipating mortgage interest rates to rise even more. In May, average interest rates on a 30-year fixed-rate mortgage sat around an average of 5.3% – 5.4%, but as of June 24th, interest rates were at 5.85%, and even momentarily topped 6.0% earlier in the month.
May’s Increase is Likely an Outlier
The housing market is very unpredictable at the moment, but economists expect that the latest rise in new home sales is an outlier as opposed to an emerging trend. A combination of high interest rates and home prices, inflation, and economic uncertainty will dissuade enough buyers from closing on transactions in future months.
“We suspect May’s surprisingly strong new home sales will prove to be the last hurrah for new home sales this year,” said Mark Vitner, senior economist at Wells Fargo in Charlotte, North Carolina.
Still, May’s 696,000 new home sales strongly beat forecasts from economists polled by Reuters. The professionals who were surveyed predicted that new home sales would drop to 588,000. The miscalculation by the economists is a sign of the uncertain housing market and the overall economy.
However, experts widely expect the housing market to substantially cool down by the end of the year, with some claiming that the current housing market is close to reaching a bubble. It’s clear that the market is near an inflection point, but the next batch of new home sales data will reveal whether the predictions will come true sooner rather than later.