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US New Home Sales Rise Sharply in May

H.S. Borji
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The sale of new US homes rebounded sharply in May, a sign the housing recovery was deepening in the second quarter.

New US home sales increased 18.6 percent in May to a seasonally adjusted annual rate of 504,000, the Commerce Department reported today in Washington. That follows a downwardly revised gain of 425,000 in April.

A median estimate of economists called for a gain to 440,000.

Compared to May 2013, new home sales were up 16.9 percent.

The median sale price of a new home in May was $282,000, while the average sales price was $319,000.

On a seasonally adjusted basis, there were 189,000 new homes for sale at the end of May. At the current sales rate, this represents a supply of 4.5 months.

New home sales are used to gauge the underlying performance of the economy. Because home buyers spend money on furnishings and appliances, higher home sales are typically associated with higher demand for goods and services.
New home sales account for approximately 7 percent of the residential real estate market.

On Monday the National Association of Realtors said existing home sales advanced 4.9 percent in May to a seasonally adjusted annual rate of 4.89 million, well above forecasts. The bigger than forecast gain was partially attributed to moderating house prices.
The median sales price of an existing home in May was $213,400, the NAR reported. That represents an increase of 5.1 percent compared to May 2013.
Standard & Poor’s revealed today that US house prices in April rose at the slowest rate in more than a year. The S&P/Case-Shiller home price indices registered a gain of 10.8 percent year-on-year, following a gain of 12.4 percent the prior months. Economists forecast an annualized gain of 11.6 percent.
Rising inventories are seen as a catalyst for easing house prices, but according to NAR chief economist Lawrence Yun, the amount of homes for sale is still “modestly below a balanced market.” This means residential construction projects will need to increase to keep house prices steady in the long run.

Data from the Commerce Department last week showed groundbreaking declined sharply in May. Housing starts tumbled 6.5 percent to a seasonally adjusted pace of just over 1 million. Building permits – a gauge of residential construction intentions – declined 6.4 percent to a seasonally adjusted pace of 991,000.

Home builders have been hesitant about adding inventory due to sluggish sales. A recent survey by the National Association of Home Builders suggests builder confidence increased in June, but remained slightly below what is considered good building conditions.

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