U.S. New Home Sales Rise Unexpectedly
April saw new home sales rise unexpectedly to the highest level seen since March 2022. Prices went down at the same time, with builders continuing to see benefits in the limited inventory of the resale market.
For April, the purchase of new single-family homes went up 4.1%. That was an annualized 683,000 pace last month, which came after a 665,000 rate in March, a downward revision.
The median estimate in a survey from Bloomberg of economists was calling for a reading of 665000. The median sales price for new homes dropped 8.2% from the previous year to $420,800, the biggest drop since April 2020. Analysts feel that’s a reflection that more people are buying cheaper houses.
Sales have been going higher since they hit a low in mid-2022. It shows builders are taking advantage of the resale market’s limited listings. The demand pickup shows that residential construction is perhaps less of a drag on the larger economy than previously thought.
Even though mortgage rates are around twice as high as at the end of 2021, investors favor homebuilder shares because there’s such a lack of existing home inventory. Builder sentiment is at a 10-month high right now, fueled at least in part by optimism for sales expectations.
In the South, sales went up almost 18%, the fastest pace since the beginning of last year. In the Midwest, purchases also increased to a more than one-year high.
At the end of April, there were 433,000 new homes for sale, which didn’t reflect much of a change from the year before. That means a 7.6-month supply at the current sales rate, a one-year low.
The number of homes that sold in April and were awaiting the beginning of construction, a measure of the backlog, increased to more than a one-year high, hitting 155,000 last month.
Homeowners aren’t willing to list their homes with the higher mortgage rates, and builders are still working through backlogs as they try to raise their inventory, so new construction is taking over market share.
The National Association of Home Builders chief economist says that new construction properties comprise almost one-
third of all housing inventory. Typically, purchases of new homes account for over 10% of total sales. They are calculated once the contracts are signed.
The sales of new homes are considered a more timely metric than purchases of homes owned previously, which are calculated at the close of a contract. Those sales went down to a three-month low in April.
Alicia Huey, the chairman of the National Association of Home Builders, says it’s encouraging that, along with seeing general growth in sales, it’s a positive sign to see it happening in what’s considered the affordable price range from $200,000 to $400,000.
Builders struggled in April to keep up with demand because of shortages in skilled labor, but there was an increase in productivity. Despite that positive news, sales for the year are still down 9.7% year-to-year because of high-interest rates. Sales might weaken in the months to come.
A new home sale can be at any stage of construction because it happens when the contract is signed or a deposit has been accepted. That means it might not be started yet, could still be under construction, or could be completed.
Finally, despite the new home sales growth, the lack of resale existing inventory is still problematic and is limiting the single-family market.