US new home sales rebounded in May; consumer sentiment at rock bottom

Carpenters work on new townhouses that are still under construction as building material supplies are in high demand in Tampa, Florida, U.S., May 5, 2021. REUTERS/Octavio Jones/File Photo

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  • Sales of new homes rebounded by 10.7% in May; April data revised upwards
  • Median home price jumps 15.0% to $449,000 from a year ago
  • Consumer confidence drops to historic low in June

WASHINGTON, June 24 (Reuters) – Sales of new single-family homes in the United States rose unexpectedly in May, but the rebound is expected to be temporary as house prices continue to rise and the average contract rate on a mortgage 30-year fixed rate approaches 6%, reducing affordability.

While Friday’s Commerce Department report also showed new home supply hit a 14-year high last month, overall housing inventory remains significantly low. The rise in sales after four consecutive monthly declines likely reflects buyers’ rush to lock in mortgage rates in anticipation of further hikes. A survey this month suggested homebuilders were expecting weaker sales in June.

“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.

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New home sales jumped 10.7% to a seasonally adjusted annual rate of 696,000 units last month. April’s sales pace was revised up to 629,000 units from the previously reported 591,000 units. Sales jumped in the densely populated West and South, but fell in the Midwest and Northeast.

Economists polled by Reuters had forecast new home sales, which account for 11.4% of U.S. home sales, to fall to a rate of 588,000 units. Sales fell 5.9% year-on-year in May. They peaked at a rate of 993,000 units in January 2021, the highest level since late 2006.

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

There was, however, encouraging news on the inflation front. While a University of Michigan survey confirmed on Friday that consumer confidence plunged to a record low in June, consumer inflation expectations have moderated somewhat.

The University of Michigan said its final consumer sentiment index fell to 50.0 from a preliminary reading of 50.2 earlier this month. It was down from 55.2 in May.

The survey’s one-year inflation expectation remained unchanged from May at 5.3%, but fell from a preliminary June reading of 5.4%. The five-year inflation outlook rose slightly to 3.1% from 3.0% in May, but was down from 3.3% earlier in June.

Rising early inflation expectations and a jump in annual consumer prices were behind the Fed’s decision last week to raise its key rate by three-quarters of a percentage point, its largest increase ever. since 1994. read more

“Fed officials will breathe a sigh of relief,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “There is nothing in today’s data to alter market expectations for another 75 basis point rate hike in July.”

Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. US Treasury yields rose.


Data this week showed sales of previously owned homes fell to a two-year low in May. Housing starts and building permits also fell last month, although they remained at high levels. But slowing demand could help realign housing supply and demand and slow price growth. Read more

The median price of new homes in May accelerated 15.0% from a year ago to $449,000. There were 444,000 new homes on the market at the end of last month, the highest number since May 2008 and up from 437,000 units in April.

Homes under construction accounted for approximately 65.8% of the inventory, with homes to be built representing approximately 25.9%. At the rate of May sales, it would take 7.7 months to eliminate the supply of homes on the market, compared to 8.3 months in April.

“Going forward, we expect homebuilders to be willing to offer more incentives and rebates to support sales in a rising mortgage rate environment,” said Doug Duncan, chief economist at Fannie Mae Mortgage Funding Agency.

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Reporting by Lucia Mutikani, additional reporting by Lindsay Dunsmuir; Editing by Mark Porter and Paul Simao

Our standards: The Thomson Reuters Trust Principles.

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