U.S. New home sales jump in May, existing home sales lag

*U.S. new home sales jumped by 16.6% m/m to 676k annualized in May, rebounding strongly from its cumulative 19% decline in March and April, placing it just 5.6% below February’s level (Chart 1). New home sales are counted at initial contract signings, providing a timely read on housing market conditions. The strong rebound in new home sales is consistent with the renewed optimism from home builders, the increase in building permits, and the strong growth in mortgage applications for home purchases (+20.1% yr/yr). See Chart 2.

*Existing home sales tumbled by 9.7% m/m to 3.91m annualized in May, a 9.5-year low, placing sales 32% below the February peak (Chart 3). Unlike new home sales, existing home sales are counted at contract closings so they are a lagging indicator of housing market conditions. Home sales transactions usually take two to three months to complete, so May’s existing sales reflect activity in March-April, the peak of the lockdown. We expect a strong rebound in existing home sales in coming months as delayed transactions are completed.

The months’ supply of new homes – ratio of new homes available for sale to homes sold – declined sharply to 5.6 in May from 6.7 in April (Chart 4). At the peak of this crisis, the months’ supply of new homes remained below the end-2018 level when mortgage interest rates spiked and weighed heavily on sales, and remained well below the 2008-2009 housing crisis levels. The relatively low and declining months’ supply of new homes will incentivize builders to continue to break ground at a faster pace in the near term.

The sharp improvement in the National Association of Home Builders’ assessment of both current (June: 63, April: 36) and future home sales in June (June: 68, April: 36) also bode well for further increases in new home sales (Chart 5).

The months’ supply of existing homes ticked up from 4.0 in April to 4.8 in May (still a low level) and the inventory of existing homes available for sale declined by 19% yr/yr, the 12th consecutive monthly decline reflecting the persistent shortage of previously owned homes available for sale (Chart 6). The median sales prices of existing homes increased by 2.3% yr/yr in May, a sharp deceleration from 7.4% yr/yr in April, but, as conditions normalize, we would expect home price growth to reaccelerate.

The sharp decline in mortgage rates to historic lows is lifting affordability and is largely responsible for the strong momentum and quick rebound in housing activity (Chart 7). We expect the shortage of reasonably priced existing homes available for sale and strong demand for housing units to continue to spur residential construction and new home sales. Importantly, favorable demographics and pent-up demand from younger cohorts will support demand in the intermediate term.

Chart 1:

Chart 2:

Chart 3:

Chart 4:

Chart 5:

Chart 6:

Chart 7:

Roiana Reid, roiana.reid@berenberg-us.com

Member FINRA & SIPC
This email and any files or attachments transmitted with it may contain confidential or privileged information and are intended solely for the use of the intended recipient. If you are not the intended recipient, please do not copy, retain, disclose or use any part of the message or its attachments. Please notify the sender immediately by return email and destroy or delete any copies. Dissemination or use of this information by anyone other than the intended recipient is unauthorized and may be illegal. Communications by email cannot be guaranteed to be secure or error-free. Emails and their attachments are subject to being intercepted, becoming corrupted, getting lost or delayed, or may contain viruses. Therefore, neither the sender nor Berenberg Capital Markets LLC (BCM) accepts any liability for any errors or omissions in the content of this message or problems in its transmission, including those arising as a result of its transmission over the internet.
BCM does not assume liability for the correctness and completeness of all information given and/or attachments contained herein. The provided information has not been checked by a third party, especially an independent auditing firm. BCM explicitly points to the stated date of preparation. The information given can become incorrect due to passage of time and/or as a result of legal, political, economic or other changes. BCM does not assume responsibility to indicate such changes and/or to publish an updated document. Any document(s) or attachment(s) is meant exclusively for institutional investors and market professionals, but not for private customers. It is not for distribution to or the use of private investors or private customers.
In light of upcoming regulatory changes, please be informed that BCM will continue to share information with you until unsubscribe@berenberg-us.com receives your termination/deletion request. For more information about the General Data Protection Regulation (GDPR) and our privacy policies please refer to https://www.berenberg-us.com/legal-notice. BCM reserves all the rights in this communication. No part of this communication or its content may be rewritten, copied, photocopied or duplicated in any form by any means or redistributed without BCM’s prior written consent.
The information contained herein and sourced may have been adopted from various news sources, for example, Bloomberg, Reuters, Street Account and various other sources. BCM does not claim accuracy, completeness, timeliness, suitability, or otherwise regarding all the information on the securities, stock markets, or developments referred to within. On no account should the Content be regarded as a substitute for the recipient procuring information for himself/herself or exercising his/her own judgments. BCM is not responsible for any recipient(s) use of this information. This Content is not a solicitation or an offer to buy or sell any of the securities contained herein. This information does not constitute a recommendation or take into account the particular investment objectives, financial situations, or needs of clients. Clients should consider whether any advice or recommendation in this Content is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of securities which may be referred to in this Content and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain securities.