Flight from the Cities: New Home Sales Surge 16.6%, Smashing Expectations

American flag at suburban neighborhood
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Sales of new homes in the United States surged higher in May as the economy reopened.

Sales of new single-family houses rose to a seasonally adjusted annual rate of 676,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 16.6 percent above the revised April rate of 580,000 and is 12.7 percent above the year-ago level.

Economists had expected a more modest bounce of just 2 percent to a pace of 636,000 from the previously reported 623,000. The actual increase was much steeper because of the downward revision for April and May’s sales rate coming in higher than expected.

The huge boost in home sales in May suggests the economy is recovering faster than expected. New home sales are only a small part of the housing market but they can have an outsized economic impact because homebuilding is labor-intensive and buyers typically also purchase a lot of adjacent goods, such as furniture and appliances.

The downward revision to April indicates that the lockdowns weighed even heavier on the real estate sector than previously thought.

New home sales are reported at contract signings, so these are purchase agreed in May. Sales of previously owned homes reported Monday disappointed expectations but those are May closings on contracts that would have been signed in the prior months.

Together, the data paint a picture of a housing market that suffered a steep decline in activity in March and April but rebounded sharply when the economy reopened.

The surge in new home sales suggests that many city-dwellers, including younger first-time buyers, may be stepping up plans to purchase homes now that they are working and schooling remotely and many urban amenities—museums, theaters, restaurants, bars—are shuttered. A new flight to the suburbs may have been sparked by the pandemic. Mass protests, riots, looting, and calls to defund police may also be encouraging families to look for housing outside of urban centers.

Sales were up sharply in the South, the West, and the Northeast. In the South, the largest market for new homes, sales rose 23 percent compared with April and were up 6.3 percent compared with a year ago. Sales in the Northeast, the smallest market for new homes, rose 45.5 percent on a monthly and annual basis. In the West, sales rose 29 percent for the month and were 31 percent higher than a year ago.

In the Midwest, sales fell 6.4 percent in May but were 4.8 percent higher than the year ago level.

 

 

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