A new ray of hope for the economy: new home sales jumped more than expected between April and May to an annual rate of 369,000 units. That is still low relative to history, but matches anecdotal reports that demand for newly built homes is finally starting to regain momentum, especially in well-established neighborhoods. The stock of existing homes in easy-to-commute neighborhoods with better schools is particularly tight, pushing more well-to-do buyers into new build. Indeed, almost all of the rise in new sales occurred in the Northeast, which has both an older stock of housing inventory and fewer greenfield sites to develop than the South or the West.
Median and average sale prices declined over the month as builders continued to chase first-time over trade-up buyers. They continue to have an easier time qualifying for mortgages and don’t have the hurdles associated with selling a home prior to closing. Pent-up demand is building, however, and with inventories of new homes at extremely low levels, prices are likely to pick up as we move into 2013. Prices are rising on a year-to-year basis and there are signs of a return of high-end build-to-suit buyers as well.
Bottom Line: The housing market continues to heal, albeit unevenly, and from a level of activity still more closely associated with a recession (almost a depression) than recovery. It is a bright spot in an otherwise dim outlook for the U.S. economy and remains subject to credit market constraints.