Sales of new homes in US bounce back in May

Analysts see gain as temporary as prices rise and high mortgage rates hit affordability

Sales of new single-family homes in the United States unexpectedly rose in May, but the rebound is likely to be temporary as home prices continue to increase and the average contract rate on a 30-year fixed-rate mortgage approaches 6 per cent, reducing affordability.

While the report from the Commerce Department also showed new home supply hitting a 14-year high last month, overall housing inventory remains low. The rise in sales after four consecutive monthly declines probably reflected buyers rushing to lock in mortgage rates in anticipation of further increases.

“We suspect May’s surprisingly strong new home sales will prove to be the last hurrah for new home sales this year,” said Mark Vitner, senior economist at Wells Fargo in Charlotte, North Carolina.

New home sales jumped by 10.7 per cent to a seasonally adjusted annual rate of 696,000 units last month. April sales were revised to 629,000 units from the previously reported 591,000 units. Sales surged in the West and the South, but declined in the Midwest and Northeast. Economists polled by Reuters had forecast a fall to 588,000 units.

The average contract rate on a 30-year fixed-rate mortgage rose this week to more than a 13 / -year high of 5.81 per cent from 5.78 per cent last week, according to data from mortgage finance agency Freddie Mac. The rate has risen by more than 250 basis points since January amid a surge in inflation expectations and the Federal Reserve’s aggressive interest rate increases.

Separate data this week showed sales of previously owned homes fell to a two-year low in May. Housing starts and building permits also declined, though they remained at high levels. But cooling demand could help bring housing supply and demand back into alignment.

The median new house price in May rose by 15 per cent from a year ago to US$449,000. There were 444,000 new homes on the market at the end of last month, the highest since May 2008.

“Going forward, we expect home builders to be willing to offer more incentives to support sales in a rising-mortgagerate environment,” said Doug Duncan, chief economist at mortgage finance agency Fannie Mae.