New Home Sales Continue Surge in May

• The share of all home sales composed of new homes ticked downward to 10% in May, but new residential construction continues to slowly ease the crunch of low existing inventory.
• Homebuyers, constrained by persistent low inventory of existing homes, are increasingly turning to builders to satisfy their demand.
• Homebuilders are continuing to sell a high share of homes that haven’t even been built yet, as frustrated buyers look to builder’s future inventory for relief.

New home sales decreased 6% in May, but much of the decrease was due to April’s large jump rather than a trended decrease in May. To put it into perspective, May’s figure of 551,000 is the second largest annual rate over the past year, eclipsed only by last month’s revised figure of 586,000. While a positive sign for both the U.S. economy and homebuyers, the share of all sales made up of new homes ticked slightly downwards, suggesting that new inventory relief for supply constrained homebuyers is slow to arrive.

Today’s numbers continue to show that the share of new home sales bought off a plan hovers near a 10-year high. Why? The inventory of existing homes continues to fall. Low existing inventory likely pushes prospective buyers away from existing homes towards new homes, and as new home sales rise, this allows builders to sell more new homes that haven’t been built yet.