Fewer people bought new homes last month. New-home sales fell 2.1 percent in May to a seasonally adjusted annual rate of 319,000 homes, the Commerce Department said. That’s far below the 700,000 homes per year that economists say must be sold to sustain a healthy housing market, according to MSNBC, and is a sign that the struggling housing market won’t rebound this year.
The median sales price rose 2.6 percent from April to $222,600. That’s more than 30 percent higher than the median sales of price of older, resale homes.
Housing remains the weakest part of the U.S. economy, analysts say. New home sales have fallen 18 percent in the two years since the recession ended. Last year was the worst for new-home sales on records dating back half a century.
Though new homes represent only about 20 percent of the overall home market, they have an outsize impact on the economy. Each new home creates an average of three jobs and $90,000 in taxes, according to the National Association of Home Builders.
Many people who can afford to buy are holding off because reports say prices have yet to bottom out.
Sales were uneven across the country. In the Northeast, they plunged nearly 27 percent and sales dropped 3.5 percent in the West. But sales stayed flat from April in the Midwest and rose 2.4 percent in the South, according to MSNBC.
The number of new homes on the market fell again in May to its lowest level on record — 166,000 homes. At the current sales pace it would take a little more than 6 months to clear those homes off the market, which economists say is a healthy time frame. But analysts say that number is artificially low because builders, who are struggling to compete with discounted re-sales, are breaking ground on fewer homes.
One reason previously occupied homes are priced so low is the market is flooded with foreclosures and short sales. These homes are sold at an average discount of 20 percent, which pull down neighboring home values.
Roughly 1.2 million homes will be foreclosed upon this year, according to foreclosure tracker RealtyTrac Inc., and an additional 1.7 million homes represent the nation’s “shadow inventory” of homes that are at risk of foreclosure, according to real estate data firm CoreLogic.
Last year was the fifth straight year that new-home sales fell. That followed record-high sales in the previous five years, when the housing market was booming. Economists say it will take years before sales return to pre-housing boom levels.
A telling sign of how far things have fallen: Home prices have dropped more during this recession than they did during the Great Depression in the 1920s and 30s. And it took 19 years for prices to fully recover during the depression.