New home sales rose in May despite higher mortgage rates

FILE – Construction workers build new homes in Philadelphia, Tuesday, April 5, 2022. Low mortgage rates have helped juice the housing market over the past decade, easing the way for borrowers to finance ever-higher home prices. A run-up in rates in recent weeks is threatening to undo that dynamic, setting the stage for a slowdown in home sales this year as the increased borrowing costs reduce would-be buyers’ purchasing power. (AP Photo/Matt Rourke, File)

New home sales jumped unexpectedly in May, according to data released Friday by the Census Bureau, defying a spike in mortgage rates and falling consumer sentiment to recover from an April downturn.

Sales of new homes rose 10.7 percent in May to a seasonally adjusted annualized rate of 696,000 — the total number of homes that would have been sold over a 12-month period at the pace set last month. Economists expected sales to decline in May after dropping 16 percent in April.

While sales plunged 51.1 percent in the Northeast and fell 18.3 percent in the Midwest last month, sales rose 12.8 percent in the South and soared 39.3 percent in the West. 

“Sales of new homes were strongest in the West and the South (the largest housing market). These are the regions that have already experienced the fastest home price growth as those who could work from home fled expensive cities for more reasonably priced, second-tier markets,” wrote Yelena Maleyev, an economist at Grant Thornton, in a Friday analysis.

Sale prices also fell slightly after significant increases in April. The median sale price of a new home dropped to $449,000 last month from $454,700 in April, and the average sale price of a new home dropped to $511,400 from $569,500. 

Economists expected new home sales to drop for the second consecutive month under the weight of rising interest rates. The Fed’s series of rate hikes has pushed the interest rate on a 30-year mortgage to an average of 5.2 percent in May, according to Freddie Mac, boosting pressure on potential buyers already coping with prices near record highs.

Though new home sales rose, Maleyev said existing home sales fell 8.6 percent for the fourth consecutive month.

“The housing market is cooling. Rising mortgage rates and high prices in many regions will keep first-time buyers on the sidelines, while the pool of investors and all-cash buyers dries up. Sales of existing homes are expected to slip further as higher rates work their way through the economy,” she wrote.

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