Not even sliding mortgage rates could champion significant growth in new home sales, according to new data from the Census Bureau and the Department of Housing and Urban Development.
Sales of new homes in May decreased 7.8% to a five-month low of 626,000 at an annualized pace, down from April’s upwardly revised rate of 679,000.
May’s level sits 3.7% lower than a year ago.
The median sales price of new homes fell 2.7% from a year earlier to $308,000, the report said.
TIAA Bank Executive Vice President John Pataky said May’s data caps off another uncertain month for the housing market.
“Across the market, the material decline in 30-year mortgage rates has pushed back against some of the negative trends we’ve seen such as land and labor shortages,” Pataky said. “In the new home segment, though, it seems that not even lower rates could counteract the structural challenges. Unless there is a strong uptick in construction or a further drop in rates, the pattern of ‘two steps forward, one step back’ results we’ve seen in the new home market will carry on.”
The seasonally adjusted estimate of new homes for sale by the end of the month was 333,000 in May, representing a supply of 6.4 months at the current sales rate.
“The dip in May new home sales comes as a surprise – particularly following the drop in April – and is an indication that the market continues to adjust to an otherwise relatively healthy spring for new construction,” Zillow Economist Matthew Speakman said.
“It comes after a stretch of unexpectedly strong months to start the year, and that strength hasn’t entirely faded. The fact that sales in some of those early months were even higher than initially reported is an indication that many buyers stand ready to purchase what builders are putting up,” Speakman said. “Purchase mortgage applications have been underwhelming, but it could still be a matter of when, not if, buyers will take advantage of stubbornly low mortgage interest rates that don’t look set to rise meaningfully for the foreseeable future.”
Despite a step backward in single-family housing starts, Speakman says builder confidence remains strong, and a recent uptick in single-family permits indicates better days are coming.