The Housing Recovery Story Receives a Pleasant Surprise

The recovery story in the real estate market continues to attract attention, as new single-family home sales in the United States reached their best level in five years last month.

On Wednesday, the U.S. Census Bureau reported that purchases of new homes, measured by contracts signed, jumped 8.3 percent to a seasonally adjusted 497,000-unit annual pace in June, compared to the downwardly revised May rate of 459,000 units. It was the best month for new home sales since May 2008. Home sales are up 38.1 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 four consecutive months, and easily beat expectations. Economists polled by Reuters expected new home sales to rise to a rate of 482,000 units in June, while the median estimate of 77 economists surveyed by Bloomberg called for a pace of 484,000 units.

The Commerce Department also reported the median sales price of new houses sold last month was $249,700, higher than $232,600 a year earlier, but down from the record high of $271,600 made in April. The average sales price came in at $295,000 for June. Although low interest rates and inventory levels have been supporting the real estate market, the average sales price last month was the lowest since November 2012.

The seasonally adjusted estimate of new houses for sale at the end of June was 161,000 units. This represents a supply of 3.9 months at the current sales rate, down from May and near record lows. The all-time high for supply hit 12.1 months in January 2009. A supply of around 6 months is typically considered to be healthy.

Despite the stronger-than-expected sales pace, home builder stocks declined across the board. Shares of Lennar (NYSE:LEN) and Toll Brothers (NYSE:TOL) both plunged more than 3 percent. Meanwhile, KB Home (NYSE:KBH) and PulteGroup (NYSE:PHM) dropped 2.5 percent and 1.9 percent, respectively.

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