Sales of new single-family homes are up 12.2 percent in May to 763,000 after a negligible downward revision to 680,000 in April. The pace of sales is well above the consensus of 667,000 in the Econoday survey of forecasters. Sales are up 20.0 percent compared to 636,000 in May 2022. It appears that new home sales benefited from the scarcity of existing homes on the market. Some of the pace of sales may be due to homebuyers who prequalified for a lower rate in April and wanted to buy before the rate lock expired, or from those who are concerned about mortgage rates going higher who decided to capture a lower rate before then.

Homebuyers reduced the supply of new single-family homes on the market to 6.7 months' worth in May, down from 7.6 months in April, and lower than the 8.3 months in May 2022. The supply was the lowest since 6.0 months in February 2022.

Lack of supply may have helped lift home prices a bit. The median home price is $416,300 in May, up 3.5 percent from $402,400 in the prior month but down 7.6 percent from $450,700 in May 2022. Lower prices may in part be from homebuilders offering incentives, but is also from buyers scooping up smaller, more affordable units.

Lack of supply means that there are relatively fewer completed units on the market. Homebuyers are signing contracts for units not yet started and under construction in order to secure better prices and/or mortgage rate. In May, the share of units sold that were not yet started jumps to 26 percent compared to 16 percent in the prior four months. Units under construction accounted for 39 percent of total May sales, down slightly from 41 percent in the prior month and completed unit sales are 35 percent of the total in May after 43 percent of in the previous month.

After a solid 683,000 annualized rate in April, new home sales in May are expected to slow to 667,000.

New home sales measure the number of newly constructed homes with a committed sale during the month. The level of new home sales indicates housing market trends and, in turn, economic momentum and consumer purchases of furniture and appliances.

This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as new home sales, investors can gain specific investment ideas as well as broad guidance for managing a portfolio. Each time the construction of a new home begins, it translates to more construction jobs, and income which will be pumped back into the economy. Once the home is sold, it generates revenues for the home builder and the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items new home buyers might purchase. The economic"ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month. Since the economic backdrop is the most pervasive influence on financial markets, new home sales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the new home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.