It’s a good time to be selling (and buying) new homes
New home sales are up 20% year-over-year, according to the U.S. Census Bureau, and lower median prices could help first-time buyers.
- From April to May, sales of new single-family homes increased 12.2%.
- With so few existing homes on the market, the share of newly constructed homes is well above typical levels.
- Builders are trying to keep up with buyer demand, particularly from first-time buyers, but new home inventory is falling.
With very few existing homes for sale and plenty of demand, new home builders are having a moment in the sun.
Sales of new single-family homes were at a seasonally adjusted rate of 763,000 in May, according to the U.S. Census Bureau. That's up 12.2% from April and an even bigger jump — 20% — compared to May 2022.
As existing home inventory remains tight, new homes are now accounting for a much larger share of the market. In May, the sector represented 31% of total inventory; typically it's around 10% or 15%, said Robert Dietz, chief economist at the National Association of Home Builders.
Even as builders continue to face rising material costs, more new homes are selling in the $200,000 to $300,000 range, said Dietz, pulling down the median new home sale price. In May, the median price was $416,300, a decline of 7.6% compared to a year ago and welcome news for buyers.
First-time homebuyers in particular may be a more important target for builders as the year progresses, said Lisa Sturtevant, chief economist at Bright MLS. According to a Bright MLS survey, buyer agents reported that more than 46% of their clients in May were first-time buyers, which was up slightly from April.
"The conventional wisdom has been that first-time buyers have been priced out of the market, sidelined by elevated mortgage rates and high prices," Sturtevant said. But in actuality, she noted, repeat buyers are making up a smaller share of the market because they are staying in their current homes so they can hold onto their ultra-low mortgage rates.
With stronger sales, the inventory of new homes is declining. In May, the U.S. Census estimated new home inventory to be at 6.7 months, down from 7.6 months in April and 8.3 months a year ago. Typically six months of inventory is considered a balanced market.
Broken down by region, sales were up year-over-year in the Northeast, South and Midwest, while down slightly in the West on a seasonally adjusted basis.