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A new single-family home under construction is seen as demand for building materials supplies increases in Tampa, Florida, US, May 5, 2021. REUTERS/Octavio Jones
New home sales fell 5.9% in May. April low average new home price rises 18.1% year-on-year as IHS Markit manufacturing PMI rises in June
WASHINGTON (Reuters) – Sales of new U.S. single-family homes fell to a one-year low in May as median prices for newly built homes rose amid higher prices for raw materials, including tire lumber.
The second consecutive monthly drop in sales reported by the Commerce Department on Wednesday was the latest indication that the tailwinds from the COVID-19 pandemic could be abating. Single-family housing has benefited from immigration from cities as millions of Americans have sought more spacious accommodations for home offices and education during the pandemic.
“New home sales along with existing home sales indicate that home buying activity has passed its peak,” said Chris Robke, chief economist at FWDBONDS in New York. “We don’t know what will happen when the stay-at-home economy switches back to the office.”
New home sales fell 5.9% to a seasonally adjusted annual rate of 769,000 units last month, the lowest since May 2020. The pace of April sales was revised to 817,000 units from the previously reported 863,000 units. The median new home price jumped 18.1% from a year earlier to $374,400 in May.
Economists polled by Reuters had forecast new home sales, which account for 11.7% of US home sales, at 870,000 units in May.
New home sales are one of the leading indicators in the housing market as they are recorded when contracts are signed. The drop hinted at some dip in demand. Applications for loans to buy homes have fallen this year, and housing market surveys of potential buyers have subsided.
Last month’s decline was centered in the densely populated south, where sales fell 14.5%. However, sales rose in the Northeast and West. They haven’t changed in the Midwest.
“While we remain optimistic about housing demand for the full year, we may see a few more months of disappointing sales,” said Mark Fettner, chief economist at Wells Fargo in Charlotte, North Carolina. “Many builders have reported less movement of potential buyers in recent weeks, particularly in some of the hottest housing markets in the South and West Mountains.”
US stocks were mixed. The dollar settled against a basket of currencies. US Treasury rates were lower.
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New home sales are taken from a sample of homes selected from building permits and tend to fluctuate on a monthly basis. Sales rose 9.2% year over year in May. The new home market is fueled by the scarcity of previously owned homes.
At least 150 million Americans have been fully vaccinated against the coronavirus, allowing the economy to begin to reopen and businesses to call workers into offices. A report from the National Association of Realtors on Tuesday showed that sales of previously owned homes fell for the fourth consecutive month in May, with single-family homes declining. Read more
Builders failed to take advantage of inventory pressure due to the high cost of timber and the shortage of other raw materials. Although timber prices have fallen from record levels, they are still prohibitively expensive, which greatly increases the cost of newly built homes. At the same time, the supply gap is boosting competition for available homes.
Supply-side constraints were also underlined by a separate survey from data firm IHS Markit on Wednesday showing manufacturers struggling to source raw materials this month. Read more
New home sales last month were concentrated in the $200,000-$749,000 price range. Sales below the $200,000 price bracket, the coveted segment of the market, made up just 2% of transactions last month.
“Over time, the supply-side issues that drove up building materials prices will be resolved, and more construction workers will start to work,” said Bernard Yaros, an economist at Moody’s Analytics in West Chester, Pennsylvania. “For now, it’s clear that higher prices have taken the lead as the biggest potential dampener for what would otherwise have been a marked V-shaped rebound in the new home market.”
There were 330,000 new homes on the market last month, up from 315,000 in April. At the pace of May sales, it will take 5.1 months to clear the supply of homes on the market, up from 4.6 months in April. About 76% of homes sold last month were either under construction or not yet built.
Last month’s drop in sales prompted Goldman Sachs economists to trim their second-quarter GDP growth estimates by 0.25 percentage point to an annual rate of 8.75%, noting that the decline was consistent with a pause in residential investment growth this quarter.
Residential spending has made significant contributions to GDP growth since the third quarter of 2020. The economy grew at an average rate of 6.4% in the January-March quarter.
(cover) Lucia Mutikani Editing by Paul Simao
Our Standards: Thomson Reuters Trust Principles.
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