New-home sales soared in May, but the gains simply put the market back on track to match last year's overall pace, rather than signaled a significant momentum gain.
Home builders, economists and analysts described the May increase as a delayed rebound to normal sales levels after a weak start to the spring selling season, which was hampered by harsh weather and the fitful economic recovery. Many cautioned that one or two more months of strong gains are needed to prove that the housing recovery indeed has gained steam.
The U.S. Commerce Department reported Tuesday that contracts to sell newly built homes in May amounted to a seasonally adjusted annual rate of 504,000, up a heady 18.6% from the rate in April, and up 16.9% from the May 2013 pace.
However, sales on a year-to-date basis show that the May gain simply amounted to catch-up for weak sales earlier in 2014. Builders sold roughly 194,000 homes in this year's first five months, nearly matching the 193,000 from the same period of 2013, Commerce data shows.
Economists noted that the monthly Commerce figures can be volatile and prone to later revisions. The April-to-May increase of 18.6% was the steepest one-month jump in new-home sales since January 1992, but it came with a margin of error of plus or minus 17.3 percentage points.
Some economists said the May increase indicates a general rebound in consumer confidence. U.S. job growth has returned to healthy levels, with more than 200,000 jobs added in each of the past four months. Interest rates on 30-year, fixed-rate mortgages remain historically low at roughly 4.17%. And home builders generally are more confident now than earlier in 2014.
However, entry-level buyers remain largely sidelined by stringent mortgage-qualification standards and tepid wage growth, economists said.
"We're going to want to see the June and July numbers to make sure that the [upward] trend is real, that we've exited a soft patch," said Robert Dietz, an economist with the National Association of Home Builders.
Doug Duncan, chief economist at mortgage-finance giant Fannie Mae, is among those who say the May increase might have partly been a bounce from a poor spring. "The first quarter was a disaster," he said, noting that a recent pickup in employment might also be leading to increased sales.
Mr. Duncan said the May rebound might improve confidence among lenders to extend credit to home builders to buy land and build new homes. That could help "rebuild the whole food chain" that leads to more new homes being built, he said.
Home-building consultant John Burns is among those who consider the May rise an aberration. A survey of 230 home-builder executives conducted by his John Burns Real Estate Consulting Inc. found a 3% rise in new-home sales contracts in May from April.
Mr. Burns blames sales so far this year being relatively flat with last year on a lack of activity from entry-level buyers and a perception among buyers that mortgages are more difficult to obtain than they actually are. Poor weather also was a factor in some regions.
One factor seen as limiting home sales—rising prices—wasn't a deterrent in May. The median price of new homes put under contract in May was $282,000, up 4.6% from April and up 6.9% from May 2013.
There was a 4.5-month supply of new homes on the market at the end of May, down from a 5.3-month inventory in April.
May's rise was led by the Northeast, where sales surged 54.5% from April, and the West, where sales were up 34%. They rose 14.2% in the South and ticked up 1.4% in the Midwest.
Home builders, economists and analysts described the May increase as a delayed rebound to normal sales levels after a weak start to the spring selling season, which was hampered by harsh weather and the fitful economic recovery. Many cautioned that one or two more months of strong gains are needed to prove that the housing recovery indeed has gained steam.
The U.S. Commerce Department reported Tuesday that contracts to sell newly built homes in May amounted to a seasonally adjusted annual rate of 504,000, up a heady 18.6% from the rate in April, and up 16.9% from the May 2013 pace.
However, sales on a year-to-date basis show that the May gain simply amounted to catch-up for weak sales earlier in 2014. Builders sold roughly 194,000 homes in this year's first five months, nearly matching the 193,000 from the same period of 2013, Commerce data shows.
Economists noted that the monthly Commerce figures can be volatile and prone to later revisions. The April-to-May increase of 18.6% was the steepest one-month jump in new-home sales since January 1992, but it came with a margin of error of plus or minus 17.3 percentage points.
Some economists said the May increase indicates a general rebound in consumer confidence. U.S. job growth has returned to healthy levels, with more than 200,000 jobs added in each of the past four months. Interest rates on 30-year, fixed-rate mortgages remain historically low at roughly 4.17%. And home builders generally are more confident now than earlier in 2014.
However, entry-level buyers remain largely sidelined by stringent mortgage-qualification standards and tepid wage growth, economists said.
"We're going to want to see the June and July numbers to make sure that the [upward] trend is real, that we've exited a soft patch," said Robert Dietz, an economist with the National Association of Home Builders.
Doug Duncan, chief economist at mortgage-finance giant Fannie Mae, is among those who say the May increase might have partly been a bounce from a poor spring. "The first quarter was a disaster," he said, noting that a recent pickup in employment might also be leading to increased sales.
Mr. Duncan said the May rebound might improve confidence among lenders to extend credit to home builders to buy land and build new homes. That could help "rebuild the whole food chain" that leads to more new homes being built, he said.
Home-building consultant John Burns is among those who consider the May rise an aberration. A survey of 230 home-builder executives conducted by his John Burns Real Estate Consulting Inc. found a 3% rise in new-home sales contracts in May from April.
Mr. Burns blames sales so far this year being relatively flat with last year on a lack of activity from entry-level buyers and a perception among buyers that mortgages are more difficult to obtain than they actually are. Poor weather also was a factor in some regions.
One factor seen as limiting home sales—rising prices—wasn't a deterrent in May. The median price of new homes put under contract in May was $282,000, up 4.6% from April and up 6.9% from May 2013.
There was a 4.5-month supply of new homes on the market at the end of May, down from a 5.3-month inventory in April.
May's rise was led by the Northeast, where sales surged 54.5% from April, and the West, where sales were up 34%. They rose 14.2% in the South and ticked up 1.4% in the Midwest.
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