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Financial report: New house gross sales are under expectations, however falling timber costs might depart room to breathe

The payment: New home sales fell more sharply than expected, falling to their lowest level in a year.

New home sales occurred in May at a seasonally adjusted annual rate of 769,000, the US Census Bureau reported on Wednesday. The number represented a 5.9% decrease from the revised figure for the previous month, but was 9.2% higher than a year ago.

The new property sales report often provides for very significant revisions in the months that follow after the initial estimates. The US Census Bureau found that the change in new home sales between March and May could be 18.6% greater or lesser than what it is currently reporting, a wide confidence interval.

The average forecast of the economists surveyed by MarketWatch was 859,000.

What happened: The decline in sales was mainly driven by a 14.5% decline in the south. In the northeast, the volume of new home sales rose 33% while the west saw a 4.8% increase. Sales remained flat in the Midwest.

The number of apartments for sale at the end of the month rose by 4.8% compared with April. The total number of new apartments for sale represented an offer of 5.1 months, the highest since May last year. The average sales price for a new home was over $ 374,000, up from around $ 365,000 the previous month.

The big picture: The restrictions in the existing home market continue to provide a runway for new home sales. "Right now we see the housing shortage as the primary limiting factor in home sales as we look to the second half of the year," said Ruben Gonzalez, chief economist at Keller Williams.

In recent months, many builders have been forced to interrupt projects because of the shortage of lumber or, in some anecdotal cases, to abandon them entirely. The shortage of wood drove up home prices and depressed construction companies' margins. The shortage was due to production backlogs at sawmills – many mills decided to shut down last spring when the COVID-19 pandemic hit the economy, only to be flattened months later when the U.S. housing market came back to life to become.

But now timber prices seem to be back on the ground, which should reduce some of the supply chain-related pressures that builders have faced and allow them to get back on track. However, builders are still facing headwinds, including labor shortages that will make it difficult to really pick up the pace of sales and construction.

What you say: "As far as the decline in home purchase mortgage applications is concerned, the downward trend is most likely primarily due to supply-related weakness in the sale of existing properties, as demand for new homes has held up comparatively well despite the decline in home purchase mortgage applications" said Joshua Shapiro, chief US economist at independent global business and financial consultancy Maria Fiorini Ramirez.

"Aside from the fact that rising home prices are driving some potential buyers out of the market, I don't have a good explanation for the recent decline," said Stephen Stanley, chief economist at Amherst Pierpont. "I suspect the May reading is mainly an anomaly."

“The sale of newly built houses is slowed down by the uncertainty that builders face. The prices of lumber, drywall, doors and roofing products are all higher than they were a year ago. When home builders pass these costs on, they face opposition from would-be buyers. The rising cost of building materials comes at an inopportune time because heavy building is the solution to the housing shortage, ”said Holden Lewis, home and mortgage expert on personal finance website NerdWallet.

Market reaction: The Dow Jones Industrial Average
DJIA,
+ 0.02%
and S&P 500
SPX,
+ 0.16%
Indexes had risen slightly after the report was released, while home builder stocks – including D.R. Horton
DHI,
-1.04%
Lennar Corp.
LEN,
-1.25%
and PulteGroup
PHM,
-0.63%
– fell in the morning trade.

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