In the midst of the lowest long-term mortgage rates in almost half a century, the Commerce Department reported that sales of new single-family homes rose for the third consecutive month in May to a record-high seasonally adjusted annual rate of 1.16 million units. This was 12.5% ahead of April's seasonally adjusted sales pace, and the fourth time this year that sales have eclipsed the million-unit mark.

“This is one more report that confirms what builders in the field have been saying for the last several months: buyer demand is really being fueled by the outstanding financing climate and solid investment potential of new homes,” says National Association of Home Builders President Kent Conine. Home mortgage rates slipped to 5.3% by late May, and median prices of new homes were up 7.8% for the month on a year-over-year basis.

“In addition, thin inventories of unsold new homes are an indication of the continuing health and good balance of this marketplace,” Conine says. The Commerce report shows that inventories of unsold new homes in May were down to a 3.5 months' supply at the current sales rate. “Only once in recorded history (November 1988) has the months' supply been this low.”

Sales of new single-family homes in May posted gains of 16% and 19.7% in the South and West, respectively, and registered a more modest 1.6% gain in the Midwest. A 9% decline in the Northeast was attributed primarily to unusually wet weather conditions.

“On the basis of the ongoing strength in sales activity, the favorable outlook for continuing low mortgage rates and rising house values, and the high level of builder confidence, we are now forecasting that new home sales will hit an all-time record high of 985,000 units in 2003 — up about 1% from last year's record-setting 977,000 units,” says NAHB Chief Economist David Seiders.

Home-Builder Confidence Up in June

National Association of Home Builders' Housing Market Index, a monthly measure of builder confidence, gained five points to 62 in June from an upwardly revised reading of 57 in May.

“Builders are now as confident in the new-homes market as they were prior to the buildup to the conflict with Iraq and before poor weather conditions weighed on the market in March,” says NAHB President Kent Conine. “In fact, builder expectations for future home sales are now even more buoyant than early in the year.”

“There is no question that today's interest-rate picture is the best it has been in many decades, and house values have continued to move up at a solid pace,” says NAHB Chief Economist David Seiders. “These factors have stimulated both home buying and mortgage refinancing by America's home owners, providing double-barreled support to the nation's economy. In many markets, the biggest concern builders have is that buyer demand is outstripping the supply of lots available for development.”

The HMI is derived from a monthly survey of builders that NAHB has been conducting for nearly 20 years. Home builders are asked to rate current sales of single-family homes and sales expectations for the next six months as “good,” “fair” or “poor.” They are also asked to rate traffic of prospective buyers as either “high to very high,” “average” or “low to very low.” Scores for responses to each component are used to calculate a seasonally adjusted index, where any number over 50 indicates that more builders view sales conditions as good than poor.

Each of the component indexes recorded gains in June. The most substantial increases occurred in the index gauging current single-family home sales, which rose five points to 67, and the index gauging traffic of prospective buyers, which rose six points to 46. The index gauging sales expectations for the next six months rose a single point to a very healthy 70 reading — its highest level since November 2002.

“All the fundamentals are in place for a very healthy new-home market, and builders are solidly optimistic about the remainder of this year,” Seiders says. “Expectations have fully rebounded, and NAHB's forecasts now anticipate that 2003 sales will exceed last year's record-breaking total.”

Year-to-Date Construction Contract Values
Unadjusted Totals, in Millions

	5 Month 2003	5 Month 2002	% change
Nonresidential Building	$57,242	$63,897	-10
Residential Building	106,576	101,266	+5
Nonbuilding Construction	36,287	45,308	-20
Total Construction	$200,105	$210,471	-5
Source: F.W.Dodge