U.S. housing activity likely to remain strong in medium term

Sales of new homes in the U.S. dropped sharply in May, declining 6 percent on sequential basis to 551,000. Consensus expectations were for 560,000. Meanwhile, data was downwardly revised for prior months. This was due to revisions to April data; however, numbers for March and February were also revised downwardly.

The numbers for April was lowered to 586,000 from the initial print of 619,000. Still, the rate recorded in April was the most rapid since February 2008. The decline in May is mostly a correction from the robust double-digit growth in new home sales recorded in April. On average, U.S. housing is likely to remain strong in the medium term, with a strong household sector underpinning both volumes and prices, said Barclays in a research report.

Region wise, activity in new home sales decelerated with drops registered in the South, Northeast and West. The Midwest was the sole region to have recorded a rise. After the decline in sales, months’ supply increased to 5.3 from 4.9. This continues to be slightly below the levels seen at the beginning of 2016. But it implies certain tightening in supply. May’s data reported weak prices. Median prices dropped 9.3 percent on sequential basis to USD 290,000, while average prices declined slightly less at -5.1 percent month-on-month to USD 359,000. On a seasonally adjusted basis, the median number of months for sale dropped to 3.4 months.

The new home sales’ revised path through May implies a slightly less brokers’ commissions than anticipated earlier, noted Barclays. Elsewhere, the residential construction’s price deflator rose 0.5 percent month-on-month.

“On net, our GDP tracking estimate remains unchanged after rounding at 2.5%”, added Barclays.