June 23, 2021 | 10:38
New Home Sales Falter
U.S. new home sales unexpectedly dropped 5.9% to 769,000 annualized in May, following notable downward revisions to the prior three months. While most regions posted modest gains, the all-important South fell for the second straight month, down 14.5%.
After strong sales activity last year (reaching near the million mark in January), today’s figures are further proof that momentum is moderating amid rising prices. The median sales price rose 18.1% to $374,400 from a year earlier. There were 330,000 new homes for sale, the most since July 2019. And, at the current sales pace, it would take 5.1 months to exhaust the supply of new homes, compared with 4.6 months in April but still below what is considered "normal".
Meantime, the number of homes sold with construction underway dropped again to the lowest since last June, underscoring the difficulty builders are having amid supply issues, and still-high building material costs (though lumber prices have eased).
Bottom Line: Demand for new homes is being supported by the near record-low inventory of existing homes for sale, especially at the entry level. As such, we expect still-healthy new home sales through this year, even as elevated prices and supply constraints pose key headwinds.