According to the Census Bureau new home sales for May posted at a seasonally adjusted annual rate of 626,000 units. This was 7.8 percent below revised April numbers and 3.7 percent below the rate seen last year. Despite plunging mortgage interest rates this year, new home sales are not exactly inspiring any headlines. The median price of a new home contracted in May was $308,000 while the average price of a new home stood at $377,200. The inventory of new homes for sale stood at 6.4 months of supply, up from 5.6 months a year ago.
Under normal circumstances lower mortgage interest rates would be translating to higher home sales. Unfortunately we are not dealing with normal circumstances. We are dealing with a global economy distorted by central bank policy, trickle-down policy, which continues to weigh on organic economic growth. As it currently stands, U.S. home prices are still near historical highs even though wages and wealth are stagnant for a large majority of the population. For what it’s worth, existing home sales aren’t faring any better.
The latest numbers on new home sales from the Census Bureau do not necessarily match up with what we have experienced in the Dallas-Fort Worth area. DFW numbers on pending sales for new construction were up 27 percent in May. These pending sales would be the closest equivalent to the Census numbers which count contract signings as sales. Denton County saw pending activity for new home sales jump 37 percent in May, so at least part of the country is outperforming the Census averages.
Based on the numbers we saw last month in DFW, I would not be surprised to see the May Census figure for new home sales revised higher in the coming months. The Census numbers are prone to revision in both directions.
Lennar Homes, one of the country’s largest home builders by both volume and revenues, reported second quarter numbers today. Revenues were up 2 percent to $5.6 billion on a 5 percent increase in home deliveries for the latest quarter ending May 31st. Lennar’s orders for new homes rose 1 percent, but the dollar value of new orders declined 4 percent. Lennar’s stock (LEN) wasn’t exactly impressed with the news. With home prices at elevated levels and affordable real estate (aka land) in short supply, home builders are in a bit of a pickle. It’s tough to produce new homes that buyers can actually afford, and sales growth for new home builders depends on a larger supply of affordable homes.