May’s new home sales came in at a seasonally adjusted annual rate of 626,000 units, an unexpected decline of almost 8%, marking a second consecutive drop. Regionally, the Midwest and South had increases in new home sales, while the Northeast and West posted significant drops.

The median sales price in May was $308,000, a fall from April’s $342,000. While sales of homes in the over-$300,000 category declined 22% since April, sales of homes in the under-$300,000 category increased 11%. Low mortgage rates are prompting new home buyers to enter the market, who are snapping up the lower costing homes but inventory remains tight.

Existing home sales, which are counted at the closing and not the offer, rebounded during the month of May. Sales increased in all four major regions of the country. First-time buyers accounted for 32% of total sales, the same as April but up 1% from a year ago. The median sales price for existing homes was $277,000, which is more in-line with entry-level buyers’ needs, but that has been increasing for 87 straight months. Inventory has increased slightly but is near historic lows, which is finally motivating builders to add less expensive new homes to the market.

Bottom Line

Buyers continue to push up prices on historically low inventory. Builder confidence dipped in June but remains firm overall despite shortages of labor and land. The Federal Reserve’s expected rate decrease in July and the anticipated effect on long-term mortgage rates will support and could even boost housing demand. Chairman Jay Powell has made clear that the Fed is looking to sustain this economic expansion, in an effort to bring more participants into the labor and housing markets.