In May sales of new U.S. single-family homes unexpectedly increased, but this is expected to be temporary, as home prices continue to rise and the average contract rate on a 30 year fixed-rate mortgage is reaching 6 percent.
A report by the Commerce Department indicated that new supplies of homes reached a 14 year high last month, but overall housing inventory remains low.
Mark Vitner, senior economist at Wells Fargo in Charlotte, North Carolina, said we suspect that May's surprisingly strong new home sales will be the last hurrah for new home sales this year.
New home sales jumped 10.7 percent to a seasonally adjusted annual rate of 696,000 units last month, while sales for April rose to 629,000 units from the previously reported 591,000 units.
Economists polled by Reuters predicted that new home sales, which account for 11.4 percent of U.S. house sales, would fall to 588,000 units.
In May, sales fell 5.9 percent on a year-on-year basis, the highest level since the end of 2006, as it peaked at a rate of 993,000 units in January 2021, the highest level since the end of 2006.
According to data from mortgage finance agency Freddie Mac, the average contract rate on a 30 year fixed-rate mortgage increased to more than 5.81 percent, compared to 5.78 percent last week, which is a 13-1 2 year high.
Since January, the rate has risen more than 250 basis points despite rising inflation and the Federal Reserve'sFederal Reserve's interest rate hikes.
Consumer confidence dropped to a record low in June, but consumers' inflation expectations were moderated, according to a survey released by the University of Michigan last week.
The final consumer sentiment index, according to the University of Michigan, fell to 50.0 from a preliminary reading of 50.2 earlier this month, down from 55.2 in May.
A rise in consumer prices, rising preliminary inflation predictions and a jump in annual consumer prices, led the Fed to raise its policy rate by three-quarters of a percentage point, its largest increase since 1994.
Fed officials will breathe a sigh of relief. According to Christopher Rupkey, chief economist at FWDBONDS in New York, there is nothing in today's data to change market expectations for another 75 basis-points rate hike in July.