New US home sales recover in May

WASHINGTON D.C.: In May, sales of new U.S. single-family homes unexpectedly increased, but this is expected to be temporary, as home prices continue to rise and the average contract rate on a 30-year fixed-rate mortgage is reaching 6 percent.

A report by the Commerce Department indicated that new supplies of homes reached a 14-year high last month, but overall housing inventory remains significantly low.

"We suspect May's surprisingly strong new home sales will prove to be the last hurrah for new home sales this year," said Mark Vitner, senior economist at Wells Fargo in Charlotte, North Carolina, as quoted by Reuters.

Last month, new home sales jumped 10.7 percent to a seasonally adjusted annual rate of 696,000 units, while April's sales were revised higher to 629,000 units from the previously reported 591,000 units.

Economists polled by Reuters predicted that new home sales, which account for 11.4 percent of U.S. house sales, would fall to 588,000 units.

In May, sales dropped 5.9 percent on a year-on-year basis, which peaked at a rate of 993,000 units in January 2021, the highest level since the end of 2006.

According to data from mortgage finance agency Freddie Mac, the average contract rate on a 30-year fixed-rate mortgage increased to more than 5.81 percent, compared with 5.78 percent last week, which is a 13-1/2-year high.

Amidst surging inflation and the Federal Reserve's interest rate hikes, the rate has risen more than 250 basis points since January.

In terms of inflation, although a University of Michigan survey released last week confirmed that consumer confidence dropped to a record low in June, consumers' inflation expectations moderated somewhat.

According to the University of Michigan, its final consumer sentiment index fell to 50.0 from a preliminary reading of 50.2 earlier this month, down from 55.2 in May.

Last week, rising preliminary inflation predictions and a jump in annual consumer prices led the Fed to raise its policy rate by three-quarters of a percentage point, its largest increase since 1994.

"Fed officials will breathe a sigh of relief. There is nothing in today's data to change market expectations for another 75-basis-points rate hike in July," noted Christopher Rupkey, chief economist at FWDBONDS in New York, according to Reuters.