New home sales reversed their 4-month slide in May, increasing from the previous month even as high mortgage rates and construction costs have made purchasing a home out of reach for some.
Sales of newly built homes shot up 10.7 percent from April to May, with 696,000 new homes sold during the month, according to data from the Census Bureau and Department of Housing and Urban Development.
While up from the previous month, the May figure was 5.9 percent lower than the 740,000 new homes sold during May 2021, and was followed by four straight months of declines in sales as the housing market slumps under the weight of mortgage rates near six percent and historically high home prices, with the median price of a new home now at $449,000, 15 percent higher than it was in 2021.
“New homes remain attractive for would-be buyers, even as the median price of a new home is 15% higher than last year, at $449,000,” George Ratiu, senior economist at Realtor.com said in an emailed statement. “While high prices have been increasingly putting the brakes on transactions, an improvement in the supply pipeline could alleviate the strain on buyers’ budgets.”
“Housing markets are in search of a reset from the feverish pace of activity seen over the past two years of the pandemic. While new homes became highly attractive during earlier COVID days, due to their enhanced functionality and technology, and the significant shortage of existing inventory,” Ratiu continued. “In this environment, a new home purchase is likely most achievable for trade-up buyers who can leverage record-high equity, or investors.”
At the end of May, the seasonally adjusted estimate of new houses for sale at the end of May was at 444,000, flat from the levels seen at the end of April.
Despite the bump in May, home builders said they expected sales to fall again in June as rates continued to climb.
“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,” Jerry Konter, chairman of the National Association of Home Builders said in a statement. “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.”