In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses new home sales.
- New single family home sales rose 2.3% to 476,000 in May, the third consecutive increase. What’s more, there were strong upward revisions to the prior two months.
- The strength of new home sales reflects improvement in the existing home sales market. Low mortgage rates, which reached the mid-3.3% range in May, combined with steady employment growth and rising prices have inspired confidence in buyers and builders alike.
- While single family construction has improved this spring, inventories of new homes remain tight in the face of rising sales, which will drive sustained price gains. Inventories are roughly half their historic average at 161,000 in May.
- While new home sales are ramping up, they remain priced significantly higher than the median existing home sale. This trend reflects in part the higher cost of new inputs and improvements, but it rose significantly following the housing recession and the differential remains well above its historic average (below in green).
- The increase in new single family sales is an important trend as it breaths life back into the homebuilding industry. However, it will be difficult for builders to fill the large gap in demand for both new and existing homes in the near term. Furthermore, higher mortgage rates will create headwinds to demand, but ironically, may help builders to gain financing as higher rates help investors to offset risk. However, changes to the capital weighting of ADC loans in Basel III still loom which will act as an overarching constraint on financing for construction.