Surging Prices for New U.S. Homes Suggest Tight Low-End Supply

U.S. New Home Sales Beat Estimates in May

Record prices for new U.S. homes amid a sales pickup indicate the supply of houses may be tight at the lower end of the market, pinching first-time buyers, government data showed Friday.

Highlights of New Home Sales (May)

  • Single-family home sales increased 2.9% m/m to 610k annualized pace (est. 590k)
  • Median sales price surged 16.8% y/y to a record $345,800
  • Supply of homes unchanged at 5.3 months; 268k new houses were on market at end of May

Key Takeaways

Low mortgage rates, a solid labor market and rising wages continue to drive steady demand for housing while scarce inventory sends prices to the highest ever, a trend that could squeeze first-time buyers. The industry faces headwinds including a lack of available workers and a limited number of plots to build on. Even with the gain, the pace of sales remains at less than half the peak seen in 2005. Any supply rebound may be a ways off, as new-home construction starts are down in recent months and permits were at a one-year low in May, according to government data.

Other Details

  • Increase in demand was led by a 6.2 percent jump in the South, 13.3 percent rise in the West; sales fell in Northeast, Midwest
  • April reading was revised to a 593,000 pace from a previously reported 569,000
  • Figures reflect 90 percent confidence that the change in sales last month ranged from a 10.1 percent drop to a 15.9 percent gain, pointing to the volatility of the data
  • New-home sales account for about 10 percent of the market and are tabulated when contracts are signed
  • Existing-home sales, based on contract closings, posted a 1.1 percent rise to a 5.62 million annual rate in May as reported earlier this week by the National Association of Realtors
  • Data released jointly by the Census Bureau and Department of Housing and Urban Development in Washington
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