After shattering expectations in April with a modest increase, new-home sales shot out of a cannon in May, eclipsing projections with a seasonally adjusted annual rate of 676,000 units.
That’s up 16.6% from the revised April rate of 580,000 units and 12.7% from the May 2019 estimate of 600,000. It’s also the most robust annual sales pace seen in May since 2007, and overshot experts’ predictions by upwards of 25,000 units.
“The May sales numbers are in line with rising builder sentiment,” said Chuck Fowke, chairman of the National Association of Home Builders (NAHB). “With home building considered an essential business, this solid sales report is another indicator that housing is leading the economic recovery.”
The bounce-back represents a nice recovery from the previous three months, when new-home sales fell approximately 25%. New-home sales continue to present better market signals than existing-home sales, which retreated 9.7% monthly in May to fall 26.6% behind the pace set in the same month last year.
Part of that is due to the fewer restrictions on new home showings, since they’re unoccupied and require less adherence to social distancing measures. The gulf between the two sales figures also reflects the different parts of the buying process they represent: existing-home sales numbers are derived from closed sales, while the new-home sales report stems from contract signings, a far earlier stage of activity.
That means that the May existing-home sales report likely signifies activity from late March through April (when lockdowns were at their strictest and most widespread), while new-home sales data reflects more recent May movement (after much of the country had already begun to reopen).
But according to Zillow economist Matthew Speakman, the new-home rebound may also potentially reflect an emergent buyer trend influenced by the ongoing coronavirus pandemic.
“The rapid improvement in sales of new homes may also reflect a change in consumer preferences, with buyers showing a newfound penchant for cleaner, never-lived-in homes,” he said, “although the long-term durability of that trend remains to be seen. Either way, builders are taking notice: Builder confidence shot way up June – a sign of good things to come for a housing market that continues to struggle with exceptionally low inventory.”
Inventory dropped to a supply of 5.6 months at the current sales pace. There were 318,000 new single-family homes for sale at May’s end, down 16.4% from the same month last year.
New-home prices, on the other hand, saw a May upturn, with the median sales price growing monthly to $317,900, up from the revised figure of $303,000 in April and from the May 2019 median of $312,700. NAHB chief economist Robert Dietz saw the price growth as “a sign of growing demand fueled in part by record low mortgage rates,” with many builders easing price incentives enacted the month prior.
“Sales are 1.9 percent higher on a year-to-date basis and our NAHB Home Building Geography Index points to construction gains in lower density markets like smaller metros and large metro exurbs in the months ahead,” Dietz said.
