New Home Sales Down 6% in May


Sales of newly built, single-family homes fell 6 percent in May month-over-month, according to data released Thursday by the Commerce Department. While the news may have taken some in the real estate industry by surprise – right during the supposed height of the market’s season – some experts are reassuring that the new home market isn’t headed for trouble.

"Although new home sales are down from a robust reading in April, they remain solid and builder confidence in the market is growing -- two indicators that the housing sector should strengthen throughout the year," says Ed Brady, chairman of the National Association of Home Builders.

Also, at an annual pace of 551,000 units, new home sales are still up compared to the first few months of this year as well as last year, notes NAHB Chief Economist Robert Dietz.

"The sales market continues to make overall gains despite month-to-month volatility,” Dietz says.

While summer is high season for the existing home market, new homes are different, says Jonathan Smoke,®’s chief economist.

“It’s normal to see declines in sales as we approach the summer,” he says. “The big months of the year for selling new homes are the months from February to April. It takes six to nine months to build a home, and most people want to move into their homes before Labor Day.”

In May, the inventory of new homes for sale was 244,000, a 5.3-month supply at the current sales price. The median sales price of a new home sold last month was $290,400.

New homes are typically pricier than existing homes. The median price of an existing home in May was $239,700, which was an all-time high last month, but still 21.2 percent lower than the price of a new home, Smoke notes.

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“Mostly what’s being built today are at higher price points that appeal to people trading up to larger homes and better neighborhoods and luxury buyers,” says Smoke. “That’s what builders can make work financially.”

Regionally, new home sales were up in the Midwest by 12.9 percent in May over April. However, new-home sales posted a 33.3 percent drop in the Northeast, a 15.6 percent drop in the West, and a 0.9 percent drop in the South.

Source: National Association of Home Builders and “New Home Sales – and Prices – Fell in May, and Here’s Why,”® (June 23, 2016)