New Home Sales: Suprise Jump, Trend Still Lower

Bottom Line:   New home sales surprised sharply higher in May, despite the historic increase in mortgage rates. Even with upward revisions to prior data, the trend remains downward. We should remember that new home sales account for a much smaller share of housing activity than existing home sales (about 10%  of existing) and tend to be more volatile. Still, looking through the volatiltiy, these May data are well below last year's levels. Moreover, they offer insights into the impact of higher mortgage rates -- where existing home sales have continued to see higher prices, average new home sales prices fell, suggesting the composition of sales is shifting towards lower-priced homes. Overall, while this report suggests sales were not as bad as previously reported, the trend remained downward, with sales likely lower in June, as the housing market adjusted to sharply higher mortgage rates (this week's move notwithstanding).