The latest data from the U.S. Census Bureau and the US. Department of Housing and Urban Development shows that sales of new single-family homes in May dropped for the second straight month. Many analysts believe this is a sign of a more enduring economic slowdown.
Learn more about May’s new single-family home sales…
Sales of new single-family homes in May came in at a seasonally adjusted annual rate of 580,000 units, according to the latest government data. This rate is down a substantial 7.3% compared to the April rate of 626,000. It is also 6.8% below the 622,000 units sold in May a year ago.
According to CNBC, this reading was also down 8.2% below analysts’ expectations of a rate of sales of 632,000. An analysis by Reuters suggested that May sales were “weighed down by higher mortgage rates and prices, dampening hopes for a housing recovery this year after prolonged weakness.”
May Data Underscores the Challenges Facing Homeowners
This was the second consecutive month of new home sales faltering. May’s reading is also the lowest level since January and the second lowest reading of the year. All of this underscores the challenges facing homeowners.
On a regional basis, sales plunged to a seven-month low in the West region (-26.9%). Single-family home sales also fell in the South, although at a slightly more moderate pace (-4.1%). Both the Northeast and the Midwest saw sales increase +3% and +16.2%, respectively.
Iran War is Main Factor Inflating Costs and Mortgage Rates
Most economists and housing analysts point to the U.S. war with Iran as the major factor driving up home mortgage costs. Earlier this week, the U.S. Congress passed a bill designed to lower housing costs for consumers. Major elements of the bill include limiting the number of single-family homes that could be purchased by investment companies, speeding up or waiving environmental reviews for residential construction projects, and more.
Though housing advocates said the bill didn’t do enough, it at least provided some relief for potential homeowners by lowering some of the costs. However, later in the week, the President refused to sign the bill until Congress passes another bill that implements voting restriction measures.
Median and Average Home Prices Continue to Rise, Hurting Affordability
The median sales price for a single-family home moved up to $424,900 in May as compared to the median sales price of $416,500 in April. However, the average sales price moved higher to $540,600 versus $501,400 in April.
The drop in single-family home sales caused the inventory of available homes to increase to a 10.3-month supply. That is the highest level of inventory since 2009. You might think that is a good thing, as there has been a shortage of homes available recently. However, analysts say that inventory is top-weighted with models that are unaffordable for most buyers. They say we still have a shortage of more affordable homes, such as starter homes.
Looks Like Housing Recovery Won’t Come Until 2027
Unfortunately, builders may have jumped the gun in assuming that their inventory problems were over, no doubt penciling in a better spring selling season that what has transpired. We could see a leveling off before the end of the year, but with demand for new homes tepid…it is beginning to look like we may have to wait for 2027 to get to a long-awaited improvement in the housing market.
Stephen Stanley, chief U.S. Economist at Santander U.S. Capital Markets
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