Sales of new homes in US slump 11.3% in May, sparks recession concern

US new home sales witnessed a notable decline, contracting by 11.3% in May compared to April, according to the Census Bureau’s latest report on Wednesday.

The data revealed that sales were recorded at an annual rate of 619,000 in May. Furthermore, the median house prices experienced a decrease, with homes selling at a median price of $417,400, down from $433,000 the previous month.

Given the ongoing concerns of a US recession, as indicated by the CB Consumer Confidence Index for the fifth consecutive month, market watchers eagerly awaited the release of the latest figures from the US housing market, which were made available today.

New home sales decline

According to the Census’ estimates data, sales of new single‐family houses in May 2024 were at a seasonally adjusted annual rate of 619,000.

It also represented a 16.5% decline year-over-year, below the May 2023 estimate of 741,000.

There is a silver lining in the situation as April’s sales figure has been revised upward from the previous estimate of 634,000 to 698,000. However, there is still a considerable supply of homes for sale, with inventories standing at a nine-month level.

Kathy Jones, the chief fixed income strategist at Charles Schwab, shared on social media, “New single-family home sales have declined by 11.3%. Although last month’s reading was revised higher, the pace remains low at 619,000.”

Property situation worsening

According to the Census’ report on May 23, new home sales were down 4.7% month-over-month (to an estimate of 665,000) and 7.7% year-over-year (to an estimate of 687000).

Mortgage rates holding steady at 7% for a 30-year fixed rate loan and soaring prices have created a significant hurdle for the housing sector. 

Existing homeowners are hesitant to give up their sub-4% mortgages and list their homes for sale, while aspiring homebuyers are finding themselves priced out of the market.

Sales prices lower

The selling prices for homes were also lower last month.

The median sales price of new houses sold in May 2024 was $417,400, while the average sales price was $520,000.

In comparison, the median sales price of new houses sold in April 2024 was $433,500. The average sales price was $505,700.

Why is the US facing a housing slowdown?

This housing slowdown is indicative of the broader economic softening, as consumers face challenges in affording high prices. 

The Federal Reserve is cautious about curbing excessive economic growth while desiring more evidence of inflation returning to its target of 2% annually.

Furthermore, the upcoming presidential election adds to consumer apprehension. President Joe Biden and former President Donald Trump are scheduled to debate in Atlanta on Thursday, making the economy a likely focal point of discussion.

For sale inventory and months’ supply down

The seasonally‐adjusted estimate of new houses for sale at the end of May was 481,000. This represents a supply of 9.3 months at the current sales rate.

Again, this was lower than the previous month. The seasonally-adjusted estimate of new houses for sale at the end of April was 480,000.

Data for this month’s United States new residential sales, which will give a more holistic picture of the US housing market for the first half of 2024 hopefully, will be available on July 24 2024. However, it’s worth noting that these will be initial estimates only.

Why are US new home sales figures important?

New residential sales (known as ‘new home sales’ often) are figures released by the US Census Bureau every month.

They give a picture of the health of the US housing and property market and, with it, of the US economy as a whole.

Usually, a higher amount of home sales, and for higher prices, means a growing and bullish US economy.

Also, a country’s housing market is known to be one of the earliest indicators of possible financial storms brewing – particularly recessions.

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