New Home Sales Surge on Rising Purchases in the South
June 25 2018 - 12:22PM
Dow Jones News
By Sharon Nunn and Paul Kiernan
WASHINGTON -- Sales of new homes in the U.S. rose heading into
the summer months, despite high selling prices and low home
inventory.
Purchases of newly built single-family homes -- a relatively
narrow slice of all U.S. home sales -- grew 6.7% to a seasonally
adjusted annual rate of 689,000 in May from April, the Commerce
Department said Monday.
Still, previously owned-homes sales, which represent the bulk of
the housing market, have declined from a year earlier in four out
of the first five months of this year, signaling home buying in the
spring may be stuck in neutral. Meanwhile, the pace of new-home
sales still remains well below the elevated levels seen before the
2007-09 financial crisis and recession.
"The rise in new home sales is likely related to the
historically low inventory of existing homes on the market," said
Ben Ayers, senior economist at Nationwide. "With fewer buying
options among existing homes, home-buyer demand is shifting towards
new builds. New home construction is also increasing with housing
starts up to an expansion high in May."
New-home sales data can be volatile. May's 6.7% gain came with a
margin of error of 14.1 percentage points, but the longer-term
trend shows growth. From the prior year, sales increased 14.1% in
May.
Sales in the South appeared to drive last month's growth.
New-home purchases in the region rose 17.9%, the largest gain since
the end of 2014. Meanwhile, sales in the Northeast and West
declined and purchases were flat in the Midwest in May.
More widely, housing market inventory has been tight, driving up
home prices and pricing some potential buyers out of the market.
Scarce construction labor and rising material costs and mortgage
rates are also headwinds for the housing market.
The average interest rate on a 30-year fixed-rate mortgage in
May was 4.59%, up more than half a point from 4.03% in January,
according to Freddie Mac. Record-high lumber prices have added
nearly $9,000 to the price of a new single-family home since
January 2017, according to the National Association of Home
Builders.
At the current sales pace, there was a 5.2-month supply of new
homes on the market at the end of May, below the 5.6 level seen at
the beginning of this year.
The "supply figures have been mostly below 6, the traditional
mark of a balanced market, for years, but the inventory situation
is much worse for existing homes, where realtors complain of a
chronic and acute shortage of quality homes for sale," Stephen
Stanley , chief economist at Amherst Pierpont Securities, said in a
note to clients.
Home builders' future expectations of single-family home sales
fell two points in June, according to NAHB's recently released
housing-market index, though sentiment remains solid.
"Improved economic growth, continued job creation and solid
housing demand should spur additional single-family construction in
the months ahead," NAHB Chief Economist Robert Dietz said in a
statement. "However, builders do need access to lumber and other
construction materials at reasonable costs...particularly for the
entry-level market where inventory is most needed."
Write to Sharon Nunn at sharon.nunn@wsj.com and Paul Kiernan at
paul.kiernan@wsj.com
(END) Dow Jones Newswires
June 25, 2018 13:07 ET (17:07 GMT)
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