US Housing Market: Strong Signs Indicate Bottoming Out and Recovery on the Horizon

According to data released by the US Department of Commerce, sales of single-family homes in the country in May 2023 rose to a 15-month high, primarily driven by a shortage of pre-owned housing supply. This surge in sales has captured the attention of both homeowners and real estate enthusiasts alike, as it signifies a potential turning point in the market.

On a seasonally adjusted basis, annual US new home sales in May 2023 experienced a remarkable 12.2% increase, reaching a staggering 763,000 units. This notable surge in sales marks the highest level observed since February 2022, surpassing the expectations set by economists polled by the renowned Reuters news agency, who had predicted a more conservative estimate of 675,000 units. The unpredicted level of growth is a testament to the robustness of the housing market, as well as the unrelenting demand for new homes in the United States.

Despite the positive news in terms of sales figures, the average price of new homes in the US for the month of May experienced a slight decline compared to the same period last year. The average new home price decreased by 7.6% to $416,300 per unit. This price adjustment may be attributed to market factors such as increased competition among homebuilders and a greater focus on catering to a wider range of potential homebuyers. Ultimately, this decline should be viewed as a positive development for those aspiring to purchase a new home, as it provides an opportunity to secure a property at a more affordable price.

In terms of inventory, there were 428,000 new homes available on the market at the end of May, slightly down from the 432,000 recorded in April. This decrease in available homes suggests a growing demand outpacing the supply. At this rate of sales, it is projected that it would take between 6 to 7 months to sell off all homes on the market, a decrease from the 7.6 months observed in the previous month. This notable reduction in the time it takes to sell a property further highlights the strong momentum of the US housing market, giving homeowners and investors more reason to be optimistic about its future prospects.

Economists closely monitoring the housing market anticipate that the recent surge in sales is a clear indication that the market has likely bottomed out and is now on an upward trajectory. A positive sign supporting this hypothesis is the rise in confidence among builders, which reached positive levels for the first time in 11 months in June 2023. This newfound optimism within the industry, despite the challenges posed by rising mortgage rates, is a testament to the overall strength and resilience of the housing market.

One notable factor contributing to the rise in home sales during May 2023 is the scarcity of pre-owned homes available on the market. With only 1 million pre-owned homes for sale in May, it is projected that it will take a mere three months to completely exhaust the existing inventory. This shortage in pre-owned homes has led potential homebuyers to shift their focus towards new homes and has played a significant role in driving up sales figures.

It is worth noting that mortgage rates have seen a rise, with the average interest rate on a 30-year fixed mortgage increasing to 6.5% in May 2023 compared to the previous month. This adjustment in mortgage rates, though seemingly detrimental, has not deterred prospective homebuyers from entering the market. The increased demand for new homes, coupled with the limited supply of pre-owned homes, has created an environment where buyers are willing to secure a mortgage despite the higher interest rates. This stands as a testament to the resilience and determination of those looking to invest in the US housing market.

The US housing market has experienced a significant surge in sales of single-family homes in May 2023, reaching a 15-month high and surpassing the expectations of economists. The limited supply of pre-owned homes, coupled with a strong demand for new homes, has fueled this remarkable growth. Despite the rise in mortgage rates, buyers remain undeterred, actively seeking opportunities to secure properties within this competitive market. With the positive indicators and the overall anticipation of an upward trajectory, it is evident that the US housing market is gaining momentum once again.