Behind the Numbers: Rising Hopes on New-Home Sales | Bedford NY Real Estate

Sales of new homes rose in May, fed by consumers taking advantage of record-low interest rates and limited supply.

As we report, sales climbed 7.6% from April to a seasonally adjusted annual rate of 369,000, the Commerce Department said Monday. May’s sales surged 20% from a year ago and struck the highest level since April 2010.

Sales are on track to beat the 306,000 homes sold last year, which was the lowest level since record keeping began in 1963.

On another bright note, prices for new homes rose 5.6% in May from the same month a year ago. Meanwhile, just 4.7 months of homes are available at current rates, leading some industry watchers to warn a supply shortage could loom in coming months. The current supply, which has fallen from 14.3 months in early 2009, is below the six months considered to be stable for supply/demand.

The improvement in the new-home market — which makes up just 10% or so of all home sales — comes as the hard-hit sector appears to have hit bottom.

To be sure, sales of both new and existing homes face a bumpy road to recovery, particularly given that the economy appears to be cooling. In May the country added just 69,000 jobs — the worst growth of the year — and the unemployment rate moved up to 8.2%. Tight credit standards, meanwhile, continue keeping would-be buyers out of the market, as do low appraisals.

Here’s what industry watchers think:

Michael Gapen, economist, Barclays: “The persistent decline in both the level of new-home inventories and months’ supply of inventories is one of the main factors behind the gradual firming of home builder sentiment in recent months, something we see as consistent with the improved pace of new home start activity. Overall, we see the May new homes sale report as yet another data point that supports our view that housing is in a moderate recovery phase.”

Dan Oppenheim, builder analyst, Credit Suisse: “We expect new home sales to continue to trend higher in the coming months, and think this should help to alleviate recent investor concerns about a slowing in sales.”

Paul Diggle, economist, Capital Economics: “While the tightness of supply conditions is positive for the house price outlook, the bigger picture is still that the housing recovery is proceeding very slowly. After all, new-home sales are about 55% below a healthy level of 850,000 and at the recent rate of improvement it would take more than seven years to return to that point.”