New home sales for May came in at a slightly better-than-anticipated change of -6.0% where a decrease of 9.5% was expected. This is the biggest decrease since September 2015 (-9.5%). The level of sales was also revised downward for the previous two months. The annual rate of change decelerated to 8.7% from 17.2% in April. The level of sales fell to 551,000 from 586,000 in April.
Regionally, the pattern of new home sales was as follows: up 12.9% in the Midwest, but down 33.3% in the Northeast, 15.6% in the West, and 0.9% in the South. The number of months’ supply of new homes rose back to 5.3 months.
This month’s decline comes against a tough comparison in the previous month and also from last year following the very severe winter. For the housing market as a whole the fundamentals continue to remain solid, and this view was reiterated by the real estate companies that presented at William Blair’s 36th Annual Growth Stock Conference last week in Chicago. The sentiment from these companies was very much that while interest rates were exceptionally low, consumer lending standards were still very tight. Supply was also a major constraint as many homebuilders have been busy building apartments and not enough have built single-family homes where inventory levels were quite tight, though they believed this was starting to change. Both new home sales and housing starts remain well below their historical averages and even in this slower-growing economy, we should still expect these to move back to at least those averages.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.