Low for Sale Inventory Boosts New Home Sales

Housing starts in the U.S. increased strongly in May, jumping 21.7% from April and 5.7% from May 2022. Building permits also increased by 4.8% from April projecting continued strength in building for the summer.

Meanwhile, lumber prices increased strongly in June, from $482 per thousand board feet on June 1 to $550 on June 28 (when this was written).

This has occurred despite U.S. existing home sales having slowed in response to mortgage interest rates. But that drop has been one cause of a counter-trend that has had a favorable effect on new home builders with new construction taking up the slack from existing home sales. This favorable factor for homebuilders also boosts demand for construction lumber markets.

John Lovall, an equity analyst with the financial firm UBS, pointed out that new home sales are growing —including a 4% bump in May—at the same time that existing home sales are dropping.

New home sales had increased in April from a July 2022 low point. At the same time existing home sales dropped 12% over the same period as owners with low monthly mortgage payments (based on old loans with low-interest rates) chose to remain in place.

Large publicly traded home builders like Lennar, D.R. Horton, Meritage Homes, and K. Hovnanian can offer their own financing through their finance affiliates. They also can offer models that are specifically designed for younger, first-time home buyers.