This week, I’m bringing you my economic news update a day early. Tomorrow morning, we’ll finally have the results of the “Brexit” vote. This is sure to be a market moving event, so I’ll post an update to the blog shortly after the news breaks tomorrow. For now, let’s focus on this side of the pond, where we’ve received several important updates on the state of the housing market.
While the Federal Reserve’s low interest rate policy helped boost existing home sales to a more than nine-year high in May, new homes declined from a more-than eight-year high last month. The reality is that existing home sales account for about 90% of the U.S. housing market, and new home sales account for just 10%. So despite the mixed data in May, the U.S. housing market still has a solid footing.
Let’s take a closer at the data for further details.
Earlier this week, the National Association of Realtors announced that sales of existing homes reached a more than nine-year high in May. Existing home sales increased 1.8% last month to an annual rate of 5.53 million units, which just missed economists’ estimates for an annual rate of 5.54 million units. Existing home sales for April were revised from a 5.45 million-unit rate down to a 5.43 million-unit rate.
The largest increase in existing home sales occurred in the West, where sales soared 5.7%. In the Northeast, existing home sales jumped 4.1%, and in the South, sales rose 4.6%. Strong gains in these three regions helped offset the 6.5% decline in existing homes sales in the Midwest.
Overall, existing home sales have risen for three-straight months, and that is impacting the amount of available homes on the market. In fact, a tight supply is elevating home prices. In the past year, home prices have surged 4.7% on average to $239,700.
On the other hand, the Commerce Department reported yesterday that new home sales declined 6% in May to an annual rate of 551,000 units. That fell short of economists’ estimates for a 560,000 unit-pace. New home sales in April were also revised lower to 586,000 units, down from the previously reported 619,000 units.
The largest decrease in new home sales occurred in the Northeast, where sales plunged 33.3%. New home sales also slipped 15.6% in the west, and 0.9% in the South. The Midwest was the one exception, as new home sales jumped 12.9% last month.
Given the drop in new home sales last month, it’s not surprising that the new home inventories increased 1.2% in May to 244,000. That’s the highest level in nearly seven years, and it would take 5.3 months to deplete the current supply of new homes on the market.
In the end, while it’s disappointing that new home sales dipped last month, existing home sales account for the majority of homes sold in the U.S. So the bounce in existing home sales in May more than offset the pullback in new home sales, which leaves the U.S. housing market still intact.