New home sales for single-family homes rose 6.7 percent in May to 689,000 units according to data released by The U.S. Census Bureau and the U.S. Department of Housing and Urban Development on Monday. Year over year, sales of new homes rose 14.1 percent from May 2017’s estimate of 646,000 homes.
While the growth in new home sales is an encouraging sign, experts believe that to sustain it, a lot will depend on builders who are currently bogged down by higher tariffs as well as high costs of material and labor.
“Margin pressures could erode the benefits that builders saw after the tax cuts,” said Tendayi Kapfidze, Chief Economist at LendingTree. “We had previously expected the tax cuts to improve builder margins by 10-15 percent, which we anticipated may have led builders to consider increasing activity at the lower-end of the market where inventory challenges are particularly acute. The tariffs may negate this benefit.”
According to Danielle Hale, Chief Economist for Realtor.com, “Demand is strongest for affordable homes, but land, labor, and materials costs are significant challenges. Builders who can successfully build lower-priced homes will find success.”
The Census Bureau data indicated that while the median sales price of homes in May was $313,000, the inventory for single-family homes for sale at the end of the month was 299,000 representing a supply of 5.2 months at the current sales rate.
The change in price points indicated that the prices for new home sales were 3.3 percent below last year and according to Hale, the average prices also showed a dip. “A strong increase in new home sales in the South coupled with a slip in new home sales in the West could explain some of the price change,” Hale said.
According to LendingTree’s Kapfidze, An increase of 17.9 percent month over month in the South “accounted for all the gains,” while “other regions were lower or flat.” He also believed that high rates might be pressuring the prices of new homes. “The median sales price of $313,000 was the lowest since April 2017,” Kapfidze said. “The share of sales over $500,000 was 15 percent, the lowest since February 2015. The decline in the median sales prices and share of higher priced homes come despite reported increases in the cost of inputs like lumber and washing machines due to tariffs.”
Another region that saw a healthy growth of new home sales was the West, according to Tian Liu, Chief Economist at Genworth Mortgage Insurance. “The region leads the country in terms of job growth, which translates into faster housing demand and home price growth,” he said. “Homebuilders are shifting resources into the West region and we expect the region to continue to outperform the rest of the country.”