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New Construction Sales Highest in 7 Years! What does this mean for Hampton Roads?

Custom kitchen in New Homes Community in Williamsburg
Exquisite custom kitchen in Westport at Ford’s Colony in Williamsburg, Virginia

By: Michelle Jamrisko – Bloomberg Article Source

Purchases of new homes in the U.S. rose in May to the highest level in seven years, signaling the industry is gaining momentum heading toward the second half of the year.

Sales climbed 2.2 percent to a 546,000 annualized pace, exceeding all forecasts in a Bloomberg survey of economists and the most since February 2008, Commerce Department data showed Tuesday in Washington. Readings for February through April were revised up.

Stronger employment and income prospects are bolstering would-be home buyers, allowing them to take advantage of relatively cheap borrowing costs. The pickup in demand points to gains in construction of residential real estate that will contribute to gross domestic product for the rest of the year.

“Look for significant increases in housing starts — we have to catch up to these demand numbers,” said Aneta Markowska, chief U.S. economist at Societe Generale in New York, whose forecast for 540,000 sales was among the closest in the Bloomberg survey. “This could be the best year for housing in terms of how much it contributes to GDP since 2012.”

Stocks rose, with the Standard & Poor’s 500 Index near a record, amid optimism that a deal on Greek aid was within reach. The S&P 500 climbed 0.2 percent to 2,127.13 at 10:17 a.m. in New York.

Survey Results

The median forecast of 71 economists surveyed by Bloomberg called for the pace to accelerate to 523,000. Estimates ranged from 499,000 to 545,000. The Commerce Department revised the April reading up to a 534,000 pace from a previously estimated 517,000.

Another report Tuesday showed orders for business equipment rose in May for just the second time this year, indicating demand for American-made manufactured goods is stabilizing. Bookings for non-military capital goods excluding aircraft increased 0.4 percent last month after falling 0.3 percent in April, according to Commerce Department data.

Orders for all durable goods — items meant to last at least three years — declined 1.8 percent, reflecting a drop in the volatile aircraft category.

The Commerce Department’s report on new-home sales showed the median sales price declined 1 percent from May 2014 to $282,800, today’s report showed.

The increase in demand last month was led by an 87.5 percent surge in the Northeast, the biggest gain since July 2012. The West climbed 13.1 percent, while sales fell in the Midwest and South. The setback in the South could have been caused by the floods that inundated parts of Texas last month.

Limited Supply

The supply of homes at the current sales pace declined to 4.5 months from 4.6 months in April. There were 206,000 new houses on the market at the end of May, the same as in the prior month.

New-home sales, which account for almost 10 percent of the residential market, are tabulated when contracts are signed. That makes them a timelier barometer than transactions on existing homes.

Previously owned home purchases rose in May to their fastest pace since November 2009, National Association of Realtors data showed Monday. Closings increased 5.1 percent to a 5.35 million annualized rate as the share of sales to first-time buyers matched the strongest level since September 2012.

The housing industry has shown gradual gains in the second quarter after the world’s largest economy slumped in the first three months of the year.

Housing Starts

While housing starts declined 11.1 percent in May to a 1.04 million annualized rate, that followed a revised 1.17 million pace in April to cap the best back-to-back readings since late 2007, Commerce Department figures showed last week. Permits for future projects rose to the highest level in almost eight years.

Homebuilders are feeling better about the outlook for sales. The National Association of Home Builders/Wells Fargo builder sentiment gauge rose to 59 this month, the strongest since September and exceeding all projections in a Bloomberg survey, from 54 in May.

“With housing markets continuing to recover, we are experiencing high levels of demand,” Chief Executive Officer Jeffrey Mezger said on a June 19 earnings call. “Inventory levels remain well below normal, and while there is still price appreciation occurring in most markets, it is at a more moderate and sustainable pace.”

Mortgage Rates

Relatively low borrowing costs also are still supporting would-be buyers who can qualify for credit. The average rate for a 30-year fixed mortgage was 4 percent in the week ended June 18, according to data from McLean, Virginia-based Freddie Mac. While that’s the second-highest rate this year, it’s still well below the 6.06 percent average from 2003 to 2007, when home sales boomed.

“Housing overall, given the still-low level of mortgage rates, remains quite affordable,” Fed Chair Janet Yellen said in a June 17 press conference after the policy makers’ two-day meeting in Washington. At the same time, “anyone who doesn’t have a pristine credit rating finds it very difficult at this point to qualify for a mortgage.”

The central bankers decided at their June meeting to keep the benchmark interest rate near zero, where it’s been since 2008. Most economists surveyed by Bloomberg project the Fed will announce its first rate increase in nine years in September.

So, what does this mean for Hampton Roads buyers?

Great article by Michelle with Bloomberg. So, what does this mean for the Hampton Roads market buyers? There are many good reasons to start your new homes search now if you have been considering a new home in Hampton Roads. Supply may become more limited and mortgage rates are predicted to rise by the end of the summer. Now is a great time to find your new home so call or email today to be connected with a sales associate trained in New Homes!

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