In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses new home sales.

• New single-family home sales perked up in May, rising eight percent in a month, and are 20 percent higher now than a year ago.  This data comes from Census/HUD and it measures contract signings, not closings.  There is no data on actual closings for newly constructed homes, but one can assume that all of the housing starts eventually get sold at some point.
• The rise in new home sales was due to homebuilders being able to build more homes in 2012.  Single-family housing starts have been running about 20 percent higher this year versus last.
• A typical new home sold for $$234,500 in May, which is up by 6 percent from one year before.  As with many other home price measurements (such as Case-Shiller, government’s FHFA, CoreLogic, LPS, and NAR), the bottom clearly appears to be passed on a national basis.  Some local markets undoubtedly are still experiencing price declines.  But based on the latest 4.7 months supply of inventory on newly constructed homes, marking the lowest point since 2005, the home price increase could actually accelerate higher if inventory continues to shrink.
• Mortgages are much more important in completing a new home sale.  Only 5 percent of newly built homes were bought with cash.  All-cash deals on existing homes (primarily on deeply-discounted distressed properties) have been about one-third of all transactions in the past 3 years.
• The new homes market comprises only about 7 percent of all home sales, with existing homes making up the large remainder.  When inventory was elevated several years ago homebuilders desperately sought out REALTOR® help in bringing buyers.  Now with inventory thinning, let’s hope homebuilders do not repeat the same mistake they did during the bubble years when they sought to sell homes without a REALTOR®.