New home sales hit five-year high
According to the U.S. Commerce Department, new home sales surged to a five-year high in June, despite increasing mortgage rates and decreasing mortgage application volume. After improving 1.3 percent in May, sales of single-family homes rose 8.3 percent in June, the highest level since May of 2008.
While June sales marks a welcome improvement compared even to May, the Commerce Department data reveals single-family home sales rose 38.1 percent compared to June of 2012 – the largest increase since January of 1992.
The inventory of new homes on the market in June rose to its highest level since August 2011, but remains tight, pushing prices upwards – the new median home price rose 7.4 percent compared to June 2012. At the end of June, the supply of new homes fell to 3.9 months, down from 4.2 percent in May, both indicating improving sales.
It should be noted that new home sales are a measure of contracts signed, not necessarily closed transactions, so this indicator suggests an even brighter future for the new home sector, one of the most hard hit sectors of housing.
Good news, but challenges remain
According to the National Association of Realtors (NAR), the volume of distressed sales slides, prices are improving more rapidly, and while sales slid for the month, they are up dramatically from this time last year.
Freddie Mac data shows that the 30-year fixed mortgage rate increased 0.53 percentage point in June to 4.07 percent, representing its highest level since October of 2011.
NAR’s Chief Economist Dr. Lawrence Yun said earlier this month, “First-time buyers should be closer to 40 percent of the market, but they’re held back by the frictions of tight credit and very limited inventory in the lower price ranges in most of the U.S.”
This represents a remaining challenge to new home builders which are well known for attracting first time buyers.