New home sales sizzle in May

Limited existing inventory continues to push home buyers toward new homes.

Sales of new single-family houses increased 12.2% to a seasonally adjusted annual rate of 763,000, the U.S. Census Bureau and the Department of Housing and Urban Development reported this morning.

The latest figure is also 20% above May 2022 estimate of 636,000.

Home prices indicate mixed signals in the latest report, however,

The median sales price of new houses sold last month was $416,300, rising more than 3.4% compared to a median price of $402,400 in April. But the average sales price in May was $487,300, falling nearly 2% from an average price $495,600 in April.

The seasonally‐adjusted estimate of new houses for sale at the end of May was 428,000, representing a 6.7-month supply at the current sales rate.

Limited supply has been a catalyst behind the direction of existing-home sales and new home sales. Limited existing inventory has pushed potential home buyers toward the purchase of new homes.

“Demand for new homes is strengthening because of a lack of existing home inventory,” said Alicia Huey, chairman of the National Association of Home Builders (NAHB) and a custom home builder and developer from Birmingham, Ala. “And while builders continue to grapple with elevated construction costs, an encouraging sign is a big gain in home sales priced in the $200,000 to $300,000 price range. In May 2022, just 5,000 homes sold in this range and that total increased to 12,000 in May 2023.”

Total housing inventory registered at the end of May was 1.08 million units, up 3.8% from April but down 6.1% from one year ago (1.15 million), according to the National Association of Realtors (NAR).

The NAR also reported earlier this month that unsold inventory sits at a 3-month supply at the current sales pace, up from 2.9 months in April and 2.6 months in May 2022.

“The lack of resale homes available for sale, at just a three months’ supply, is supporting demand for newly built homes,” said NAHB Chief Economist Robert Dietz. “New home inventory was 31% of total inventory in May. Historically it is typically 10% to 15%. Further, the pace of resales is down 20% from a year ago, while the rate of new home sales is up 20% from a year ago.”

The trajectory of new home sales from May 2018 to May 2023.

Here’s how new home sales performed in May 2023 on a regional basis

In the Northeast, sales jumped 17.6% compared to the prior month and soared 110% on a year-over-year (YOY) basis.
In the Midwest, sales rose 4.1% and are up 40% on a YOY basis.
In the South, sales posted an 11.3% increase and ascended 22% compared to the same period a year ago.
In the West, sales declined 0.9% and are down 2.9% from May 2022.

A new home sale occurs when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction, or completed.