WASHINGTON (Reuters) – Sales of new single-family homes in the United States increased more than expected in May and business activity contracted moderately this month, suggesting that the economy was on the verge of recovering from the recession caused by the crisis in COVID-19.
FILE PHOTO: Real estate signs advertise new homes for sale in multiple new developments in York County, South Carolina, USA. USA, February 29, 2020. REUTERS / Lucas Jackson
But a resurgence in confirmed coronavirus cases across the country threatens nascent signs of improvement evident in Tuesday’s economic data. Many states have reported record daily increases in COVID-19 infections, which health experts have attributed to local governments for reopening their economies too soon. The economy has stabilized as companies reopened after closing in mid-March to control the spread of respiratory disease.
“The new surge in COVID-19 cases across the South and West poses a clear downside risk in the coming months, but, with a second wave of statewide blockades that seems unlikely for now, we are assuming this will act as a modest drag on the economic recovery, rather than resulting in a renewed recession, “said Andrew Hunter, an American economist at Capital Economics.
New home sales increased 16.6% at a seasonally adjusted annual rate of 676,000 units last month, the Commerce Department said. New home sales are counted towards the signing of a contract, making them a leading indicator of the real estate market. Last month’s increase left sales just below its pre-COVID-19 level.
Sales fell 5.2% in April at a rate of 580,000 units. Economists surveyed by Reuters had forecast new home sales, which account for about 14.7% of property market sales, increasing 2.9% at a rate of 640,000 in May.
New home sales are obtained from building permits. Sales increased 12.7% from a year ago in May. The report followed data from last week showing home purchase requests in an 11-year high in mid-June and permits rebounded strongly in May.
The overall economy fell into recession in February, leaving nearly 20 million people unemployed as of May.
In a separate report Tuesday, data firm IHS Markit said its composite U.S. production index, which tracks the manufacturing and service sectors, rose to a reading of 46.8 in June from 37 in May. A reading below 50 indicates a contraction in private sector output.
The improvement was led by a decline in the manufacturing slowdown, with the rapid Purchasing Managers Index rising to 49.6 from 39.8 in May. The survey’s service sector flash PMI rose to 46.7 from 37.5 in May.
Activity is also increasing worldwide. The IHS Markit Eurozone Flash Composite Buying Managers Index rebounded to 47.5 from May 31.9.
Stocks on Wall Street boosted gains in the data and hopes for more fiscal stimulus. The dollar fell against a basket of coins. United States Treasury prices were lower.
The new home market is underpinned by historic low interest rates and a preference among single-family home buyers far from city centers, as companies give employees more flexibility to work from home in the midst of the coronavirus crisis.
But with record unemployment and companies freezing hiring to cope with weak demand and keep costs under control, a strong rebound in the housing market is unlikely.
“If the general economy seems to be slowing down, the public may not be so sure to pay a down payment on an expensive new home,” said Chris Rupkey, chief economist at MUFG in New York. “Many companies are insolvent and there will be fewer expenses for unemployed Americans that could keep this economic recovery in the slow lane for some time.”
Last month’s surge in new home sales did little to offset a drop in existing home sales in April and May, leaving economists’ expectations of a record decline in residential investment in the second quarter intact. Home construction also picked up moderately in May after a fall in April.
Last month, new home sales soared 45.5% in the Northeast and advanced 29% in the West. They rose 15.2% in the South, which represents the majority of transactions, but fell 6.4% in the Midwest.
The median price of new housing increased 1.7% to $ 317,900 in May from a year earlier. New home sales last month focused on the $ 200,000 to $ 400,000 price range.
New homes priced below $ 200,000, the most sought after, accounted for about 15% of sales.
There were 318,000 new homes on the market in May, down from 325,000 in April. At the pace of sales in May, it would take 5.6 months to settle the supply of housing on the market, compared to 6.7 months in April. Nearly two-thirds of the homes sold last month were under construction or had not yet been built.
Lucia Mutikani’s report; Editing by Andrea Ricci