Purchases of new homes in the United States in May showed the highest increase in 22 years, indicating the industry is rebounding from a winter-induced lull at the start of the year.
Sales surged 18.6 percent, the biggest one-month gain since January 1992, to a 504,000 annualized pace, figures from the Commerce Department showed Tuesday. The reading was the strongest since May 2008.
The report, following data Monday showing a pickup in existing-home sales, indicates that housing is gathering momentum as employment improves and borrowing costs stabilize.
“Housing is beginning to revive,” said Stephanie Karol, an economist at IHS Global Insight. “It’s a step in the right direction. The job market is helping, and there was an expansion of supply the past couple of months.”
The median sales price rose 6.9 percent from May 2013 to reach $282,000, the report showed. Purchases climbed in all four regions, led by a 54.5 percent jump in the Northeast.
The supply of homes at the current sales rate dropped to 4.5 months, the lowest since June 2013, from 5.3 months in April.
New-home sales account for about 7 percent of the residential market and are tabulated when contracts are signed, making them a timelier barometer than purchases of previously owned dwellings. The latter are calculated when a contract closes, typically a month or two later.
Existing-home sales are regaining their footing after a stumble early in the year, figures from the National Association of Realtors showed Monday. Purchases climbed 4.9 percent, the biggest increase since August 2011, to a 4.89 million annualized rate. The level was the strongest since October. The median home price rose 5.1 percent from May 2013, matching the April gain as the smallest 12-month advance since the year ended March 2012.
Another report Tuesday showed that home prices in 20 U.S. cities rose at a slower pace than forecast for the year ended in April as declining affordability put a lid on appreciation.
The S&P/Case-Shiller index of property values increased 10.8 percent from April 2013, the smallest 12-month gain in more than a year, after rising 12.4 percent in March, the group reported Tuesday.
“It’s a movement toward a more normal market,” Scott Anderson, chief economist at Bank of the West in San Francisco, said before the report. “We’re seeing a normalization of the market going forward.”
The S&P/Case-Shiller Index is based on a three-month average, which means the April figure was influenced by repeat sales transactions in February and March. Home prices adjusted for seasonal variations increased 0.2 percent in April from the prior month, the smallest gain since February 2012. Unadjusted prices rose 1.1 percent. Property prices rose in 14 of 20 U.S. metropolitan areas in April from a month earlier, led by a 1.9 percent jump in Boston. Adjusted prices fell in Cleveland, New York, San Diego and Washington.
The year-over-year gauge, based on records dating back to 2001, provides a better indication of price trends than the monthly figure, the group has said. Economists Karl Case and Robert Shiller created the index.
All 20 cities in the index showed a year-over-year gain, led by an 18.8 percent increase in Las Vegas and an 18.2 percent advance in San Francisco. Cleveland showed the smallest year-over-year increase, with prices rising 2.7 percent.
The number of homes on the market rose 6 percent from a year earlier to 2.28 million, the most since August 2012. At the current sales pace, it would take 5.6 months to sell those houses compared with 5.7 months at the end of the prior month.
Slower price appreciation and borrowing costs that have fallen since the start of the year will help support sales. The average rate on a 30-year, fixed mortgage was 4.17 percent for the week ended June 19 compared with 4.53 percent for the period ended Jan. 2, according to Freddie Mac in McLean, Va.
“Near-term economic factors favor further gains in housing: mortgage rates are lower than a year ago, the Fed is expected to keep interest rates steady until mid-2015 and the labor market is improving,” S&P index committee chairman David Blitzer said in a statement. “However, housing is not back to normal.”
Still, Freddie Mac and the Mortgage Bankers Association last week both trimmed their home-sales forecasts for 2014, with the banker trade group predicting a decline in sales for the first time in four years, to 5.28 million for 2014.
Marianne Lake, chief financial officer for JPMorgan Chase in New York, called 2014 “a transition year” for housing and mortgage markets. Most owners have refinanced into lower rates and demand for purchase financing is weaker than it once was, she said at a conference earlier this month.
“The combination of refi burnout as well as slow purchase improvement has led to the smallest production market in over 14 years,” Lake said. “Income growth isn’t where it needs to be, but we are still expecting that to be recovering over the course of the next several years.”