New Home Sales Fall Short of Forecasts in May

The housing market cooled off a little in May, but a busy and (complicated) summer looms for the home building industry.

According to the latest data from the U.S. Census Bureau, sales of newly built single-family homes dropped 5.9 percent from April to May. New home sales were reported at a seasonally adjusted annual rate of 769,000 in May, falling more than 100,000 units short of expert forecasts.

“While we remain optimistic about housing demand for the year as a whole, we may see a few more months of underwhelming sales,” Mark Vitner, a senior economist at Wells Fargo in Charlotte, North Carolina, told Reuters. “Several builders have reported lighter prospective buyer traffic in recent weeks, particularly in what had been some of the hottest housing markets in the South and Mountain West.”

Regionally, new home sales varied wildly in May. In the Northeast they jumped 33 percent, while in the West they increased 4.4 percent. But sales in the Midwest were flat month-to-month, and in the South they dropped 14.5 percent.

While demand for housing remains strong across the U.S., the home building industry continues to be limited by problems within its supply chain, with material cost increases and shortages complicating projects at every stage.

“Sales of newly constructed homes are held back by the uncertainty that builders face,” Holden Lewis, a home and mortgage expert at NerdWallet, told MarketWatch. “Prices for lumber, drywall, doors, and roofing products are all higher than they were a year ago.

“As builders pass along those costs, they encounter resistance from would-be buyers. The rising costs for construction materials come at a bad time, as vigorous construction is the solution to the housing shortage,”

Recent drops in lumber prices suggest the home building industry and its supply chain may be slowly normalizing. But for the time being, home builders still have major headwinds to work around, including worsening labor shortages and continued limited availability of materials.

“New home prices have increased over the last year due to higher material costs and delays for deliveries,” says NAHB Chairman Chuck Fowke. “Policymakers must take action to improve supply chains in order to protect housing affordability.”

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