New-home purchases rise sharply in May
New-home sales rose 7.6 percent in May compared to April, with the most gains concentrated in the Northeast, which saw a 36.7 percent rise. Prices could rise because inventory is very low. (May 16, 2012) Credit: AP
Americans bought new homes in May at the fastest pace in more than two years. The increase suggests a modest recovery is continuing in the U.S. housing market, despite weaker job growth.
The Commerce Department said Monday that sales of new homes increased 7.6 percent in May from April to a seasonally adjusted annual rate of 369,000 homes. That's the best pace since April 2010, the last month that buyers could qualify for a federal home-buying tax credit.
Even with the gains, the annual sales pace is less than half the 700,000 that economists consider to be healthy.
Yet, the increase follows other signs that show the housing market is slowly improving nearly five years after the bubble burst. Builders are gaining confidence in the market and starting to build more homes. Mortgage rates have plunged to the lowest levels on record, making home-buying more affordable. Prices remain low and have started to stabilize. And sales of previously occupied homes are much higher than the same time last year.
Though new homes represent less than 20 percent of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the National Association of Home Builders.
One reason prices could rise is the supply of new homes for sale remains extremely low. Just 145,000 new homes were for sale in May. That's not much higher than the 144,000 available in April, which was the lowest supply on records dating back to 1963.
At the current sales pace, it would take 4.7 months to exhaust the May supply. A six-month supply is generally considered healthy by economists.
"With no excess inventory of unsold new homes, any sustained rebound in new home sales should quickly translate into firmer prices," said Steven Wood, chief economist at Insight Economics.
The median price of a new home sold in May edged down 0.6 percent from April to $234,500. But the median price was 5.6 percent higher than the same month one year ago.
Builders are responding to the low supply. In May they requested the most permits to start construction on homes and apartments in 31/2 years.
The gains in new homes sold were concentrated in two regions of the country last month. Sales surged 36.7 percent in the Northeast and 12.7 percent in the South. Sales fell 10.6 percent in the Midwest and were down 3.5 percent in the West.
Sales of new homes are increasing despite a sluggish job market, which has slowed retail spending and business investment in computers and machinery. Hiring slowed sharply in April and May, raising concerns about the strength of the recovery.
