New Home Sales Join Existing Homes Sales in Beating Forecasts for May

Andrew Klips  |

Sales of newly built homes in the United States ballooned to a six-year high in May, aided in part by a sudden burst of construction in the Northeast, according to a report Tuesday from Washington, lending some evidence that the housing market is gaining some steam after a lengthy slowdown.

The Commerce Department said that new home sales rose by 18.6% in May from April to a seasonally adjusted annual rate of 504,000 units, marking the highest level since May 2008 and biggest one-month advance since January 1992. New home sales slid in February and March, with blame placed on the unseasonably cold and snowy winter, but edged ahead in April from March by 3.7% to an annual rate of 425,000 (revised down from an original estimate of 433,000).

Economists were predicting a rise in May, but only to about 440,000 homes.

Compared to May 2013, new home sales were up by 16.9%, versus being down by 6% year-over-year in April. Last year, sales peaked in June at an annual rate of 459,000 and then started moving lower (including a dive to 367,000 in July), mostly because home owners were looking to build at the beginning of the year before talk started to grow louder about the Federal Reserve raising interest rates and tapering its stimulus effort, which resulted in an uptick in bank rates for mortgages.

According to Freddie Mac ($FMCC), borrowing rates have edged lower in 2014, slipping from an average of 4.43% in January to 4.17% last week for a 30-year fixed-rate mortgage.

The median sales price of new homes sold in May was $282,000. The median price is the number in the middle, meaning that half of the new homes sold at prices above that mark and half sold below that price. The average new price, which totals the value and divides by the number of homes sold, was $319,200 during May.

At the end of May, there were 189,000 homes up for sale, representing a supply inventory of 4.5 months at the current pace, following a 5.3-month supply in April. Economists generally consider a six-month supply as an even balance in a healthy market.

By region, sales in the Northeast, which almost always posts the fewest number and can be somewhat volatile, rose from a 22,000 annual pace in April (the lowest number in two years) to 34,000, representing a gain of 54.5% and the highest level in six years. The rebound is likely the result of pent-up demand after a lull during the harsh winter that saw the annual rate hold at 30,000 or less in five months to May. In the West, generally the second biggest sales region, new homes sales swelled from a 97,000-home annual pace to 130,000 for a gain of 34.0%. In the Midwest, sales rose by 1.4% to an annual rate of 74,000. The South, the largest region by far, recorded an increase of 14.2% from an annual rate of 233,000 to 266,000.

Yesterday, the National Association of Realtors reported that existing home sales rose more than predicted in May also. Sales of previously owned homes rose 4.9% from April to a 4.89 million annualized rate, representing the highest monthly percentage gain since August 2011. Economists were calling for a hike to 4.75 million. The median price of a pre-owned home increased 5.1% compared to a year earlier to $213,400, marking the smallest year-over-year increase since March 2012. The supply of existing homes on the market was equal to 5.6 months at the current sales pace.

The markets seem to like the housing news. After taking a pause on Monday, the Dow Jones Industrial Average is up 18 points, the S&P 500 is yet again printing new record highs with a gain of 4 points and the Nasdaq continues to improve on its highest level since 2000 with an advance of 29 points as the noon hour approaches.

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