Sales of New U.S. Homes Surged in May to Highest Since 2008

Purchases of new homes in the U.S. rose in May by the most in 22 years, indicating the industry is rebounding from a winter-induced lull at the start of the year.

Sales increased 18.6 percent, the biggest one-month gain since January 1992, to a 504,000 annualized pace, figures from the Commerce Department showed today in Washington. The reading exceeded all forecasts in a Bloomberg survey of 74 economists and was the strongest since May 2008.

Today’s report, following data yesterday that showed a pickup in existing home sales, shows housing is gathering momentum as employment improves and borrowing costs stabilize. Builders such as Hovnanian Enterprises Inc. are optimistic the recovery is on track after harsh weather in early 2014 hurt demand.

“The housing recovery is still going on,” Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, said before the report. “We’ll see a general trend of improvement.”

Consumer confidence climbed more than forecast in June to reach the highest level in more than six years, another report today showed. The New York-based Conference Board’s sentiment measure rose to 85.2, the most since January 2008, according to figures from the research group.

Stock climbed after the reports, erasing earlier losses. The Standard & Poor’s 500 Index rose less than 0.1 percent to 1,963.71 at 10:07 a.m. in New York.

Survey Results

The median forecast in the Bloomberg survey projected a gain in new-home sales to a 439,000 annualized rate. Estimates ranged from 415,000 to 462,000. The reading for the prior month was revised to 425,000 from a previously reported 433,000.

The median sales price increased 6.9 percent from May 2013 to reach $282,000, today’s report showed. The number of houses for sale at the end of the month held at 189,000.

Purchases climbed in all four regions, led by a 54.5 percent jump in Northeast.

The supply of homes at the current sales rate dropped to 4.5 months, the lowest since June 2013, from 5.3 months in April.

New-home sales account for about 7 percent of the residential market and are tabulated when contracts are signed, making them a timelier barometer than purchases of previously owned dwellings. The latter are calculated when a contract closes, typically a month or two later.

Existing Homes

Existing home sales are regaining their footing after a stumble early in the year, figures from the National Association of Realtors showed yesterday. Purchases climbed 4.9 percent, the biggest increase since August 2011, to a 4.89 million annualized rate. The level was the strongest since October. The median home price rose 5.1 percent from May 2013, matching the April gain as the smallest 12-month advance since the year ended March 2012.

Another report today showed home prices in 20 U.S. cities rose at a slower pace than forecast in the year ended in April as declining affordability put a lid on appreciation. The S&P/Case-Shiller index of property values increased 10.8 percent from April 2013, the smallest 12-month gain in more than a year, after rising 12.4 percent in March. The median projection of 25 economists in a Bloomberg survey called for an 11.5 percent year-over-year increase in April.

Price Increases

Increasing property prices hurt affordability for prospective buyers trying to get into the market, at the same time they also help homeowners feel wealthier and may keep boosting profits for developers.

Hovnanian Enterprises, New Jersey’s largest homebuilder, is optimistic that demand will continue to rise though sales have been uneven in recent months.

“While the housing market has improved dramatically overall compared to where it was a couple of years ago, the recent recovery has been a little more choppy,” Chief Executive Officer Ara Hovnanian said during an earnings conference call on June 4.

Household formation will be the primary driver of long-term housing demand, he said and “the creation of well-paying jobs will go a long way” toward it. “Given the low levels of total U.S. housing starts, we remain convinced that we are still in the early stages of the housing industry recovery,” Hovnanian said.

Residential construction is picking up this quarter after a weather-induced slump at the start of the year. Builders broke ground on homes at a 1 million annualized pace in May following 1.07 million in April, the best two-month reading since late 2013, a Commerce Department report showed this month.

Builder Sentiment

Sentiment is also rebounding. The National Association of Home Builders/Wells Fargo confidence index climbed to 49 from 45 in May, the biggest gain since July 2013. The gauges for current sales, the outlook for future purchases and prospective buyer traffic all improved to the highest level since January.

Affordability is improving. Property-price appreciation is cooling and borrowing costs, which climbed in the second half of 2013, have retreated recently. The average 30-year, fixed-rate mortgage was 4.17 percent in the week ended June 19, down from 4.41 percent at the beginning of April, according to data from Freddie Mac in McLean, Virginia. Overall, mortgage costs are still near historically low levels.

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