The numbers: An ongoing and persistent lack of homes in the resale market is pushing more home buyers into new construction, which caused sales to surge for the second month in a row.
The strength in new home sales was also driven by a massive jump in sales in the south. Overall, new home sales are trending higher as buyers grapple with a low level of home listings in the existing home sales market.
U.S. new home sales rose 4.1% to an annual rate of 683,000 in April, from a revised 656,000 in the prior month, the Commerce Department reported Tuesday.
The number is seasonally adjusted, and refers to how many homes would be built over an entire year if builders continue at the same pace every month.
The jump exceeded expectations on Wall Street. Economists had forecast new home sales to fall to 669,000 in April.
Home builders are constructing new homes at the highest level since March 2022.
The data from February was revised significantly. New home sales rose to a revised 656,000 in March, compared with the initial estimate of a 9.6% increase to 683,000.
The new home sales data are volatile month-on-month and are often revised.
Key details: The median sales price of a new home sold in April fell to $420,800 from the month before. Prices have fallen from a peak of $496,800 in October last year. It’s also the first time prices dropped on a year-over-year basis since 2020.
The supply of new homes for sale fell 3.8% between March and April, equating to a 7.6-month supply.
Regionally, the south led new home sales by 17.8%, but was recovering from a sharp drop the previous month.
Overall, sales of new homes are up nearly 12% compared to last year.
Big picture: Move over, high mortgage rates — low inventory is strangling the housing market, as buyers have few options. Builder confidence is high as homeowners feel compelled to wait and hold on to ultra-low mortgage rates they refinanced into during the pandemic.
Builders have gotten an edge over existing homeowners who are selling by offering incentives from mortgage rate buydowns to other freebies, but it’s unclear how long that will last. The builders’ industry group reported earlier this month that the share of builders reducing home prices fell to 27% in May, from 30% in April.
Plus, the 30-year is inches shy of hitting 7%, which could weigh on the potential buyer’s calculus.
What are they saying? “The broader story is that despite a sharp increase in mortgage rates over the last year, new home sales are up roughly 12%,” Neil Dutta, head of economics at Renaissance Macro Research, wrote in a note.
“Builders continue to benefit from the lack of inventory in the resale market and the room to buy down prospective buyers to lower rates,” he added.
“This spring, new home sales are a more important part of the market than they would be in a more typical year,” Lisa Sturtevant, chief economist at Bright MLS, said in a statement.
While sales of new single-family homes typically form less than 10% of national home sales, this April, the share increased to about 14%, she added.
Market reaction: Stocks were up in early trading on Tuesday. The yield on the 10-year Treasury note
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rose above 3.7%.
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