New-home sales unexpectedly rise to a more than one-year high

New-home sales unexpectedly rose last month to the highest level since March 2022 and prices declined, indicating builders continue to benefit from limited inventory in the resale market. 

Purchases of new single-family homes increased 4.1% to an annualized 683,000 pace last month from a downwardly revised 656,000 rate in March, government data showed Tuesday. The median estimate in a Bloomberg survey of economists called for a 665,000 reading.

The median sales price of a new home dropped 8.2% from a year earlier to $420,800, marking the biggest decline since April 2020 and reflecting more purchases of cheaper houses.

Sales have trekked higher since hitting a multi-year low in mid-2022, showcasing how builders are taking advantage of limited listings in the resale market. The gradual pickup in demand suggests residential construction is becoming less of a drag on the economy.

Despite mortgage rates that are about twice as high as they were at the end of 2021, investors have embraced homebuilder shares because of the lack of existing-home inventory. Moreover, builder sentiment stands at a 10-month high, partly reflecting more optimism about sales expectations.

Sales jumped almost 18% in the South to the fastest pace since early last year. Purchases also picked up in the Midwest to a more than one-year high.

Housing Inventory

There were 433,000 new homes for sale as of the end of last month, little changed from a year ago. That represents 7.6 months of supply at the current sales rate, a one-year low. 

The number of homes sold in April and awaiting the start of construction — a measure of backlogs — increased to a more than one-year high of 155,000 last month.

With homeowners reluctant to list their properties in a higher mortgage-rate environment and builders working through backlogs to boost output, new construction is gaining market share. According to Robert Dietz, chief economist at the National Association of Home Builders, new construction now makes up almost a third of housing inventory.

New-home purchases typically account for more than 10% of total sales and are calculated when contracts are signed. 

Sales of new homes are considered a timelier barometer than purchases of previously-owned homes, which are calculated when contracts close. Those sales fell to a three-month low in April, separate data showed last week.

The new-homes data are volatile; the report showed 90% confidence that the change in sales ranged from a 7.7% decline to a 15.9% increase.