Surging Prices for New Homes Suggest Tight Low-End Supply

Home Construction
Sam Hodgson/Bloomberg News

Record prices for new U.S. homes amid a sales pickup indicate the supply of houses may be tight at the lower end of the market, pinching first-time buyers, government data showed June 23.

Highlights of New Home Sales

• Single-family home sales increased 2.9% month-over-month to 610,000 annualized pace (estimate of 590,000).

• Median sales price surged 16.8% year-over-year to a record $345,800.

• Supply of homes unchanged at 5.3 months; 268,000 new houses were on market at the end of May.

Key Takeaways

Low mortgage rates, a solid labor market and rising wages continue to drive steady demand for housing while scarce inventory sends prices to the highest ever, a trend that could squeeze first-time buyers.

The industry faces headwinds including a lack of available workers and a limited number of plots to build on. Even with the gain, the pace of sales remains at less than half the peak seen in 2005. Any supply rebound may be a ways off, as new-home construction starts are down in recent months and permits were at a one-year low in May, according to government data.

Other Details

• Increase in demand was led by a 6.2% jump in the South, 13.3% rise in the West; sales fell in Northeast, Midwest.

• April reading was revised to a 593,000 pace from a previously reported 569,000.

• Figures reflect 90% confidence that the change in sales in May ranged from a 10.1% drop to a 15.9% gain, pointing to the volatility of the data.

• New-home sales account for about 10% of the market and are tabulated when contracts are signed.

• Existing-home sales, based on contract closings, posted a 1.1% rise to a 5.62 million annual rate in May as reported earlier in the week of June 19 by the National Association of Realtors.

• Data released jointly by the Census Bureau and Department of Housing and Urban Development in Washington.