New home sales jump 20% for the year, hitting two year high

Single family home sales skyrocket

According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD), sales of single family homes jumped 19.8 percent from May 2011 to May 2012, and prices are on the rise as well, signaling the beginning of a slow recovery for one of the hardest hit sectors in the economy.

Between April and May, new home sales jumped 7.6 percent to a seasonally adjusted 369,000-unit annual rate, hitting a two year high, beating forecasts for the month. The last time sales were this high was when the homebuyer tax credit was fueling sales in spring of 2010.

Some are reserving their enthusiasm for a recovery, however, as sales are barely at 25 percent of their summer 2005 peak, and tight lending combined with extremely competitive pricing of distressed homes continue to hold back the new home sector.

Permits, starts, and builder confidence

According to the U.S. Census Bureau data released last week, home builders applied for permits in May to build new homes at a seasonally adjusted annual rate of 780,000, jumping 7.9 percent above April 2012, and 25 percent above May 2011, hitting their highest rate since September 2008. The increase in permits echoes the increase in builder confidence during the month of May which was at its highest level in five years.

There is a growing disparity, however, between the improving single family sector and the increasingly volatile multifamily sector as actual housing starts for single family rose 3.2 percent for the month while multifamily took a 24.2 percent dive. Overall, housing starts increased 2.85 percent over the year when looking at both sectors together.

Regional performance varied

According to the report, new home sales were boosted primarily by a spike in the Northeast which saw a 36.7 percent increase in sales in May, their highest level in nearly three years, as the South jumped 12.7 percent, reaching a two year high.

Slumping sales of 10.6 percent for the month in the Midwest did not drag down the national numbers, nor did the slight 3.5 percent drop in sales in the West.

The new home sector is expected to continue recovering, but it is certain that after a punishing recession, there is a long way to go in order to reach what used to be “normal.”