"May New Home Sales Hit Two-Year High"

New home sales jumped to 369,000 in May—the highest level since April 2010—as the median and average home prices both dropped, the Census Bureau and HUD reported jointly Monday. Economists had expected sales to reach 350,000 from the prior month’s 343,000.

Sales increased 7.6 percent month-over-month, the first increase in three months, and were up 19.8 percent since May 2011.

The median price of a new single family home fell for the third straight month, dropping to $234,500, the lowest level since February. The median price is up, however, 5.6 percent from May 2011. The average price of a new home fell, as well in May, dropping 3.5 percent to $273,900, the second consecutive monthly decline. The $10,000 month-over-month drop in the average price was the largest since last August. Year-over-year, the average price is up 4.3 percent, or $11,200.

Last week, the National Association of Realtors reported existing home sales dropped to 4.55 million in May, while the median price of an existing home rose to $182,600. Unlike the report on existing home sales, which is based on completed transactions (closings), new home sales report is based on contracts signed that could be cancelled. The report on new home sales is more reflective of economic conditions in the month covered by the report, while the report on existing home sales reflects economic conditions two months earlier. The Census-HUD report hints at higher existing home sales in July.

In May, according to the National Association of Home Builders’ monthly survey, the buyer traffic index rose to 23 (out of 100) from 18 in April.

According to a separate Census-HUD report issued last week, builders completed 458,000 new homes in May, down from 489,000 in April but still more than reported sales in May.

About 39 percent of new homes sold in May carried prices of $199,000 or less, up from 37 percent in April. According to the report, 14 percent of new homes sold in May had prices of $400,000 or more, down from 18 percent in April.

Sales improved month-over-month in two of the four census regions, increasing in the Northeast and South while dropping in the Midwest and West. Year-over-year, sales fell only in the West.

According to the Commerce Department, the inventory of homes available for sale at the end of May rose to 145,000 from 144,000 in April. Based on the sales pace, the months’ supply of new homes for sale dropped to 4.7 in May—the lowest level since October 2005—from 5.0 at the end of April.

By: Mark Lieberman, Five Star Institute Economist