May 2015 New Home Sales

Sales of new homes rose in May 2015 to the highest level in seven years according to the Census Bureau.  There were 546,000 units sold on a seasonally adjusted annualized rate.  This is 2.2 percent higher than April’s upwardly revised count of 534,000 (originally 517,000).  An upward revision of 10,000 to March’s figure added to the enthusiasm.

Supply is getting tighter and prices are rising.  At the end of May, the Census Bureau estimates there were 206,000 new homes on the market, unchanged from April.  At the current pace of sales, the entire stock of new homes could be gone in just 4.5 months if no other houses were built.  The median price of a new home in America stands at $282,000 which is $8,300 less than a month earlier.  However, the average price improved $3,100 to $337,000 in the period.  This suggests a few really expensive homes were sold in the period, thus causing the average to rise while the median price fell.

Residential investment is making a comeback in America.  The levels are nowhere near the number of transactions prior to the peak, but the year-over-year improvement was 19.5 percent, a strong number considering the economy grew much slower over the same period.  New home construction adds to our nation’s output tally, so we should see this indicator make a positive contribution to second quarter GDP when it is released at the end of July.  Consumption should also benefit from this strengthening housing market as homes are furnished and fitted with the latest appliances.  In addition, faster construction is good for employment, adding even more to America’s virtuous cycle.  (by C. Cox)