There 481,000 new homes for sale as of May, the highest level since 2008
Sales of new U.S. single-family homes dropped to a six-month low in May, impacted by rising mortgage rates that dampened demand, signaling a faltering housing market recovery. However, the impact of the largest sales decline in over 1.5 years, as reported by the Commerce Department on Wednesday, was somewhat mitigated by a significant upward revision of April's data, which now indicates sales rose instead of falling as previously estimated. Supply reached its highest level in more than 16 years.
The housing market has borne the brunt of the Federal Reserve's aggressive interest rate hikes since March 2022. Despite this, the sector began to recover starting in the third quarter of last year due to a severe shortage of previously owned homes, which boosted demand for new constructions. The resurgence in mortgage rates has also negatively affected sales of previously owned homes and new home construction.
"As it stands, today's report will further convince the Fed that monetary policy is restrictive and that it will be time to start lowering rates in the coming months," said Richard de Chazal, macro analyst at William Blair.
New home sales decreased by 11.3% to a seasonally adjusted annual rate of 619,000 units last month, the lowest level since November, according to the Commerce Department's Census Bureau. This percentage-based drop was the largest since September 2022. April's sales pace was revised up to 698,000 units, a nine-month high, from the previously reported 634,000 units.
Economists polled by Reuters had forecast that new home sales, which account for 13.1% of U.S. home sales, would reach a rate of 640,000 units. New home sales are counted at the signing of a contract, making them a leading indicator of the housing market. However, they can be volatile on a month-to-month basis. Sales slumped 16.5% on a year-on-year basis in May.
Residential investment experienced double-digit growth in the first quarter, contributing to the economy's 1.3% annualized growth rate. Economists at Goldman Sachs have revised their gross domestic product estimate for the second quarter down to a 1.8% pace from the previous 1.9% rate based on this data.