Industry News Markets
U.S. new home sales drop in May as housing costs continue to rise

New home sales fell to the lowest pace in a year, with prices jumping 18 per cent on a year-over-year basis, due to the high costs and uncertain availability of building materials, lots and labour. Sales of newly built, single-family homes fell 5.9 per cent in May to a 769,000 seasonally adjusted annual rate, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The May number follows significant downward revisions to the April estimate and previous months’ readings.

“New home prices have increased over the last year due to higher material costs and delays for deliveries,” said Chuck Fowke, chairman of the National Association of Home Builders (NAHB) and a custom home builder from Tampa, Fla. “Policymakers must take action to improve supply-chains in order to protect housing affordability. While lumber costs have come down in recent weeks, they are still more than 210 per cent higher than a year ago. And OSB prices are up 380 per cent over the last year.”

“As expected, new home sales have continued to soften this spring. While higher prices have shifted some buyers to the sidelines, NAHB survey data indicates that approximately 20 per cent of builders have limited sales activity in recent months in order to manage supply-chains of materials and labor availability,” said NAHB chief economist Robert Dietz.

A new home sale occurs when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the May reading of 769,000 units is the number of homes that would sell if this pace continued for the next 12 months.

Inventory remains low at a 5.1-month supply, with 330,000 new single-family homes for sale, 3.8 per cent lower than May 2020. Supply-side challenges remain an issue, with the count of new homes sold that had not started construction, up 76 per cent over the last year. The count of new homes sold that are completed and ready to occupy is down 33 per cent.

The median sales price was $374,400, up 18 per cent from the $317,100 median sales price posted a year earlier.

“Entry-level buyers are being most affected by higher prices,” noted Dietz. “Just a year ago, shares of sales priced below $300,000 accounted for 44 per cent of sales, while this May it has dropped to 26 per cent.”

Regionally on a year-to-date basis new home sales rose in all four regions, up 48.7 per cent in the Northeast, 33.5 per cent in the Midwest, 32.3 per cent in the South, and 5.6 per cent in the West. These significant increases are due in part to lower sales volume during the COVID crisis a year ago.