Sales of new US single-family homes fell to a one-year low in May as the median price of newly built houses soared amid expensive raw materials, including framing lumber.
The second straight monthly decline in sales reported by the Commerce Department on Wednesday was the latest indication that the tailwind from the Covid-19 pandemic could be subsiding. Single-family housing benefited from a migration from cities as millions of Americans sought more spacious accommodations for home offices and schooling during the pandemic.
“New home sales along with existing home sales suggest home buying activity is past its peak,” said Chris Rupkey, chief economist at FWDBONDS in New York. “We don’t know what is going to happen when the stay-at-home economy shifts to going back to the office.”
New home sales dropped 5.9 per cent to a seasonally adjusted annual rate of 769,000 units last month, the lowest level since May 2020. April’s sales pace was revised down to 817,000 units from the previously reported 863,000 units. The median new house price jumped 18.1 per cent from a year earlier to $374,400 in May.
Economists polled by Reuters had forecast new home sales, which account for 11.7 per cent of US home sales, would be at a rate of 870,000 units in May.
New home sales are considered a leading housing market indicator as they are recorded when contracts are signed. The drop hinted at some easing in demand. Applications for loans to purchase homes have fallen this year and housing market surveys on potential buyers have also softened.
Last month’s decline was concentrated in the populous South, where sales tumbled 14.5 per cent. Sales, however, rose in the Northeast and West. They were unchanged in the Midwest.
“While we remain optimistic about housing demand for the year as whole, we may see a few more months of underwhelming sales,” said Mark Vitner, a senior economist at Wells Fargo in Charlotte, North Carolina. “Several builders have reported lighter prospective buyer traffic in recent weeks, particularly in what had been some of the hottest housing markets in the South and Mountain West.”
US stocks were mixed. The dollar was steady against a basket of currencies. US Treasury prices were lower.
New home sales are drawn from a sample of houses selected from building permits and tend to be volatile on a month-to-month basis. Sales rose 9.2 per cent on a year-on-year basis in May. The market for new homes is being supported by a dearth of previously owned houses.
At least 150 million Americans have been fully vaccinated against the coronavirus, allowing the economy to begin reopening and companies to recall workers back to offices. A report from the National Association of Realtors on Tuesday showed sales of previously owned homes fell for a fourth straight month in May, with single-family houses accounting for the drop.
Builders have failed to take advantage of the inventory squeeze because of expensive lumber and shortages of other raw materials. Though lumber prices have eased off record highs, they remain exorbitant, substantially adding to the cost of newly built homes. At the same time, the supply gap is boosting competition for available homes.
The supply-side constraints were also underscored by a separate survey from data firm IHS Markit on Wednesday showing manufacturers struggling to source raw materials this month.
New home sales last month were concentrated in the $200,000-$749,000 price range. Sales below the $200,000 price bracket, the sought-after segment of the market, accounted for only 2 per cent of transactions last month.
“Over time, supply-side issues that have pushed up the price of building materials will be resolved and more construction labor should come on line,” said Bernard Yaros, an economist at Moody’s Analytics in West Chester, Pennsylvania. “For now, higher prices have clearly come to the forefront as the greatest potential damper to what has otherwise been a remarkable V-shape recovery in the new-home market.”
There were 330,000 new homes on the market last month, up from 315,000 in April. At May’s sales pace it would take 5.1 months to clear the supply of houses on the market, up from 4.6 months in April. About 76 per cent of homes sold last month were either under construction or yet to be built.
Last month’s sales decline prompted economists at Goldman Sachs to pare their gross domestic product growth estimate for the second quarter by 0.25 percentage point to an 8.75 per cent annualized rate, noting that the drop was consistent with a pause in residential investment growth this quarter.
Residential spending made big contributions to GDP growth since the third quarter of 2020. The economy grew at a 6.4 per cent pace in the January-March quarter.