The new-home market is booming as states wind down sheltering-in-place restrictions, easing the search for a new home. Sales of newly built single-family homes last month jumped nearly 13% over 2019—that is the strongest May since 2007, according to newly released data from the U.S. Census Bureau.
However, while sales are rebounding, housing starts—the construction of new homes—posted a lackluster month, showing that builders are struggling to keep up with the quick resurgence in buyer demand. The strong rebound has caught builders off guard. Single-family housing starts in May were about 18% lower annually and building permits, a sign of future construction, was down about 10%.
Builders have a lot of catching up to do. The largest sales jump in May for the new-home sector was from homes that had not yet been started.
“Sales of homes not yet under construction are rising given capacity limitations in the building industry,” says Robert Dietz, chief economist at the National Association of Home Builders. “Due to labor and land constraints, homebuilders were already producing too few single-family homes given potential demand. As housing demand has picked up in recent weeks, builders have shifted sales to homes not yet under construction—a 20% year-over-year gain for such sales.”
Homebuilders are ramping up hiring to help meet demand.
“There has been a production deficit in housing,” Stuart Miller, chairman and former CEO of Lennar, told CNBC. “We are shelter-supply-constrained, and that supply constraint means that all forms of shelter are going to thrive in the current market and probably be sustainable for the next year or two.”
The median sales price in May for a new home was $317,900.
Regionally, new home sales in May saw the largest annual gains in the Midwest (up 9.5%) and Northeast (up 6.8%), followed by more muted upticks in the West (up 1.4%) and South (up 0.3%).