The Housing Market Receives An Impressive Surprise

The recovery story in the real estate market continues to build stronger, as new single-family home sales in the United States rose more than expected last month.

On Tuesday, the U.S. Census Bureau reported that purchases of new homes, measured by contracts signed, increased 2.1 percent to a seasonally adjusted 476,000-unit annual pace in May, compared to the revised April rate of 466,000 units. That is the best level since July 2008. Home sales are up 29.0 percent compared to a year earlier. However, as the chart below shows, the real estate market is still well below its glory days.

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New home sales have increased for three consecutive months, and easily beat expectations. Economists polled by Reuters expected new home sales to rise to a 462,000-unit rate in May, while the median estimate of 74 economists surveyed by Bloomberg called for a pace of 460,000 units.

The Commerce Department also reported the median sales price of new houses sold last month was $263,900, higher than $239,200 a year earlier, but down from the record high of $271,600 made in April. The average sales price came in at $307,800 for May. Although low interest rates and inventory levels have been supporting the real estate market, the average sales price of $279,900 in March was the lowest since June 2012.

The seasonally adjusted estimate of new houses for sale at the end of May was 161,000 units. This represents a supply of 4.1 months at the current sales rate, near record lows. The all-time high for supply hit 12.1 months in January 2009.

Home-builder stocks such as Lennar (NYSE:LEN) and PulteGroup (NYSE:PHM) surged 3.4 percent and 4.6 percent, respectively. Meanwhile, Home Depot (NYSE:HD) and Lowe’s Companies (NYSE:LOW) gained 1.2 percent and 0.80 percent, respectively.

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