Surging prices for new homes suggest tight low-end supply

Record prices for new homes amid a sales pickup indicate the supply of houses may be tight at the lower end of the market, pinching first-time buyers, government data showed Friday.

Single-family home sales increased 2.9% month over month to a 610,000 annualized pace (the estimate was 590,000). The median sales price surged 16.8% year over year to a record $345,800. The supply of homes unchanged at 5.3 months and 268,000 new houses were on market at end of May.

Low mortgage rates, a solid labor market and rising wages continue to drive steady demand for housing while scarce inventory sends prices to the highest ever, a trend that could squeeze first-time buyers. The industry faces headwinds including a lack of available workers and a limited number of plots to build on.

Even with the gain, the pace of sales remains at less than half the peak seen in 2005. Any supply rebound may be a ways off, as new-home construction starts are down in recent months and permits were at a one-year low in May, according to government data.

The increase in demand was led by a 6.2% jump in the South and a 13.3% rise in the West, while sales fell in the Northeast and Midwest.

The April reading was revised to a 593,000 pace from a previously reported 569,000. The figures reflect 90% confidence that the change in sales last month ranged from a 10.1% drop to a 15.9% gain, pointing to the volatility of the data.

New-home sales account for about 10% of the market and are tabulated when contracts are signed. Existing-home sales, based on contract closings, posted a 1.1% rise to a 5.62 million annual rate in May as reported earlier this week by the National Association of Realtors.

The data were released jointly by the Census Bureau and Department of Housing and Urban Development in Washington.

Bloomberg News
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