Surprise leap in US new home sales; home prices slowing down

US new home sales jumped 18.6% in May to 504k, well above the consensus. May sales are also 16.9% higher than a year ago. This upward surprise may be a late winter catch-up effect. New home sales were clearly below trend in February to April. But including May, average sales since February are 443k, which is closely in line with sales in the latter half of 2013. Our working hypothesis therefore is that May’s jump is a one-off, and sales will likely revert to the pre-winter 440-460k range next month.

Earlier today, the April Case-Shiller 20-City home price index decelerated markedly. Prices increased 0.2%MoM (sa), well below the 0.9% average monthly price rise we have seen in recent months. Prices are now up 10.8% over a year ago, down from 12.4% last month.

We have been expecting upward price pressures to diminish for some time now, given the slowdown in sales. But today’s 0.2% looks like an undershoot of the trend. That is probably at least partly a correction of last month’s surprisingly strong 1.3%MoM increase. We may be looking at some seasonal adjustment issues here. That said, a further slowdown of home prices in the coming months is likely as existing home sales are 5% lower than a year ago, even after yesterday’s uptick. But the still limited supply of existing homes for sale, 5.3 months right now versus a long-term average of 6.5, will ensure that prices will not weaken substantially.

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