Number of New Home Sales Drops, but So Does Supply

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new homes salesJust as the market was starting to pick up steam, skittish buyers have once again cooled its engines. After two months of growth, new home sales in May dropped 2.1 percent, according to Census figures released Thursday. But the record-low inventory of new construction could mean we'll see the light at the end of the tunnel sooner than we think.
Sales of new single-family homes in May came in at 319,000, down from a revised 326,000 in April. Yet the news isn't entirely bleak, as the latest sales figure is still 13.5 percent higher than May 2010, when sales came in at 281,000.

Moreover, the total estimate of new houses for sale in May was 166,000, or a supply of 6.2 months at the current sales rate, which is the lowest monthly home sales figure since the data was first recorded in 1963, according to a Census statistician.

This may actually be a positive sign for the housing market, as a smaller backlog of new homes means less homes deteriorating on the market, and a return to a healthier level of inventory, the statistician said. Of course, the housing outlook is also heavily dependent on other factors, like unemployment and consumer confidence -- but, for the moment, shrinking inventory is a good sign.

The median home sales price of $222,600 was 3.4 percent lower than in May 2010, when it was $230,500.

But with the total number of new homes approaching a more regular sales pace, some analysts predict that demand will soon pick up, and in a big way. Keep in mind, however, that existing home sales make up the lion's share of the market (roughly 94 percent, according the to the National Association of Realtors), and foreclosures continue to clog the pipeline, with some 1.8 million distressed homes nationwide. So while new home sales may soon see a resurgence, a full-blown recovery is still in the distant future.

CORRECTION: The post previously used preliminary data to measure median home sale figures. It now includes the most recent revisions.

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