Adding to a slew of recent positive news around housing, the latest data shows new-home sales rising significantly in May, up a blistering 12.2% from the previous month and 20% year-over-year, as a steady real estate rebound continues to defy recession predictions.
Every region saw significant increases in sales, with the Northeast in particular experiencing a big jump despite major issues with inventory, providing some evidence both that builders are ramping up production, and that demand remains strong even in more expensive areas.
Bright MLS Chief Economist Dr. Lisa Sturtevant said in a statement that “conventional wisdom” about who is buying new homes—often much pricier than existing homes—has not held up in the current market, with younger, first-time buyers storming back after their demographic fell to historic lows last year.
“Repeat buyers are making up a smaller share of sales because they are ‘rate locked’—that is, they are staying in their current home instead of moving because they have a very low mortgage rate,” Sturtevant explained. “New-home builders that target younger and first-time homebuyers will be well-positioned for a robust second half of 2023.”
The year-over-year increase was the largest since April 2021, according to Sturtevant.
National Association of Homebuilders (NAHB) Chair Alicia Huey called the data “an encouraging sign” in a statement, highlighting the proportion of new homes at lower price points.
More than a quarter (27%) of new-home sales in May were priced in the $300,000 to $399,999 range—the same proportion as 2021 and 2022. But an increasing number were being sold at lower price ranges, with 16% of new homes going for between $200,000 and $299,999—up from 10% in January, and far more than the average last year (9% of homes sold in 2022 were in this range).
Just over one-in-10 (11%) new homes were at the highest price range, $750,000 and up, down from 13% in April..
New construction data surprised analysts earlier this month, as builders have also shown increasing confidence in a strong 2023 market. It will be much harder to dismiss those metrics as a blip in the context of this latest data, as consumer demand seems to have persisted through nearly all recent economic headwinds.
Sturtevant said that new-home sales made up 15% of all home sales in May, much higher than average, calling it a “huge surge.”
“The slow spring housing market indicated by existing-home sales data is being provided with a welcome bump by activity in the new-home market,” she said.
It is these first-time buyers that are likely driving demand, after they fell to the lowest level in 41 years in 2022. RISMedia’s Broker Confidence Index (BCI) found that more real estate executives across the country are expecting a rebound in that category. Surveys of Bright MLS’ region in the mid-Atlantic have found that is already happening, with over 40% of sales going to first-time buyers last month.
Sturtevant highlighted a shrinking “price gap” between existing and new homes as helping steer more first-time buyers into new builds. In May, there was only a 5% difference between new and existing homes, bolstering hope that a ramp up in new construction could fill the hole left by existing homeowners, who appear to be squatting on low mortgage rates.
“Builders are feeling increasingly upbeat about the market as buyer demand is solid and the inventory of existing homes for sale remains extremely limited,” she said.
Regionally, the biggest increase in new-home sales came in the Northeast—somewhat surprisingly, as that region has typically faced issues with land costs and zoning restrictions. Sales were up 17.6% from April, and an astounding 110.5% year-over-year.
In the South, which has historically offered a better environment for new residential construction, sales jumped 11.3% from last month and 22% from last year. The Midwest saw a modest increase of 4.1% from the previous month, with sales up 40% from May of last year.
In the West, sales grew 17.4% from April, but were actually down slightly (0.6%) year-over-year.
