Dive Brief:
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New-home sales rose 2.9% in May to a rate of 610,000 after sliding a revised 7.9% in April, the Commerce Department reported Friday. Sales are now ahead 8.9% year-over-year.
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May's figures blew past analyst expectations, with MarketWatch economists predicting a pace of 590,000 for the month.
- The median sales price of new homes sold in May was $345,800, up from a revised $310,200 in April. There were 268,000 new homes for sale at the end of May, a 5.3-month supply, unchanged from April.
Dive Insight:
Despite a rebound in sales, the category continues to lag behind market expectations — and poor housing starts reports aren't lifting confidence in the segment. Starts fell 5.5% in May, reaching their lowest level in eight months. Building permit authorizations also slid to their lowest levels in more than a year, signaling a slowdown in future construction activity.
During that time, however, builder confidence in the market reached its second-highest reading since the recession, and employment added 7,100 new residential construction positions. Both measures suggest construction companies could be gearing up for more work in the coming months, though that growth will likely be tempered by the persisting lot and labor shortages.
Builder optimism in the market for new single-family construction turned down in June, with all three sub-indices on an index kept by the National Association of Home Builders and Wells Fargo — tracking current sales conditions, sales expectations for the next six months and buyer traffic — reporting losses. The downturn in optimism represents builders' struggle to bring in skilled laborers and a shortage of land, hampering their production abilities in the face of rising demand.
Demand for new housing could moderate in the coming months amid soaring home prices and general fluctuations in mortgage rates. U.S. home prices rose 1.6% from March to April, according to the latest CoreLogic Home Price Index — and that number will likely continue to rise with CoreLogic estimating an increase of 5.1% by April 2018. A second benchmark interest rate increase this year by the Federal Reserve also stands to slow demand, as the rate hike will likely elevate mortgage rates through the summer.