US new-home sales jump to highest since 2022 as prices fall

[ATLANTA] US new-home sales rose unexpectedly in April to the highest level since February 2022, likely helped by builder incentives aimed at alleviating affordability challenges.

Purchases of new single-family homes increased nearly 11 per cent last month to a 743,000 annual rate, boosted in particular by the South and Midwest, according to government data released on Friday (May 23). The figure exceeded most estimates in a Bloomberg survey of economists.

The gain indicates that the new-homes market is holding up better than the resale market, reflecting the ability of builders to cut prices and offer sales incentives. Sales of previously owned homes have been lacklustre even as more homeowners list their properties.

However, sharp downward revisions to the prior three months tempered the optimism. Moreover, the greater sales activity failed to make much of a dent in the inventory of homes.

“The jump in new-home sales looks like a statistical illusion, rather than a genuine pick-up in demand,” Samuel Tombs, chief US economist at Pantheon Macroeconomics, said in a note. “A downward trend in sales still looks likely to emerge over coming months, given that new mortgage rates remain very high.”

Prospects for the residential real estate market this year remain clouded due to persistent affordability challenges that include mortgage rates hovering near 7 per cent. Moreover, consumer anxiety about finances and the employment outlook is building in the wake of higher tariffs, leaving many prospective buyers sidelined.

Builders are helping to cushion some of the blow with greater use of sales incentives and cutting prices. The median sales price decreased 2 per cent from a year ago to US$407,200, reflecting greater activity in more moderately priced homes. On an annual basis, prices have largely been retreating over the past 12 months.

In April, the supply of new single-family homes for sale dipped slightly to 504,000, still near the highest since late 2007, the latest report showed. The number of completed homes awaiting purchase also was unchanged at an almost 16-year high.

“Higher incentives and lower prices helped to boost sales over April as many builders tried to offload some inventory,” Nationwide Senior Economist Ben Ayers said in a note. “Given the uncertainty regarding forward costs for construction materials, it’s likely that many builders needed additional financial flexibility heading into the summer.”

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Looking ahead, a big supply of new homes on the market and growing competition from the previously owned home market will squeeze homebuilders’ profits and sale prices, Bloomberg Intelligence analyst Drew Reading said in a note this week.

Sales in the South, the US’s biggest homebuilding region, increased almost 12 per cent to the highest in four years. Meantime, sales in the Midwest jumped over 35 per cent. The West posted a more muted gain, while sales in the Northeast fell.

New-home sales are seen as a more timely measurement than purchases of existing homes, which are calculated when contracts close. However, the data are volatile. The government report showed 90 per cent confidence that the change in new-home sales ranged from a 2.6 per cent decline to a 24.4 per cent gain. BLOOMBERG