US new-home sales climb to six-month high on surge in south

US purchases of new homes advanced in May to a six-month high as sales in the South increased to the fastest pace since 2007, according to government data released on Monday.

Highlights of new-home sales (May)

• Single-family home sales rose 6.7% m/m to 689k annualised pace (est. 667k) after 646k rate (revised from 662k).

• Median sales price decreased 3.3% y/y to $313 000.

• Supply of homes at current sales rate fell to 5.2 months from 5.5 months

Key takeaways

The stronger-than-forecast gain in US sales reflected a 17.9% surge in the South, the nation’s largest region, to a 409 000 annualised pace. While that was the strongest in almost 11 years, demand was mixed in other parts of the country.

The report also showed a six-month high in the number of homes sold but not yet started, indicating residential construction will continue to boost growth.

What’s more inventory remains lean. The supply of home available at the current sales pace fell to 5.2 months’ worth, the lowest since November.

The pickup in contract signings is an indication that a build-up in home equity tied to rising property values is benefiting trade-up buyers. Demand also remains underpinned by steady hiring and lower taxes.

At the same time, prospects for first-time buyers and those with modest incomes have deteriorated. Mortgage rates near a seven- year high and home prices that are rising much faster than wage growth remain obstacles for these Americans.

The cost of borrowing may continue to creep higher. The Federal Reserve boosted interest rates by a quarter point in June and increased to two the number of additional hikes possible this year.

Data on existing homes released last week showed that sales unexpectedly fell in May for a second month as an inventory crunch pushed prices up and left buyers, particularly first- timers, on the sidelines.