US New Home Sales Hit 1.5-Year High In May Despite Fed's Rate Hikes

U.S. new home sales soared in May, reaching the highest level since February 2022, as the housing market continues to rebound amidst a shortage of previously owned homes. This surge in new home sales comes despite the Federal Reserve’s aggressive rate hikes, a trend that has been impacting the real estate market.

According to data from the Commerce Department, new home sales jumped 12.2% to a seasonally adjusted annual rate of 763,000 units last month. This is a significant increase from April’s revised sales pace of 680,000 units.

Regional Sales Growth

New home sales experienced double-digit growth in the Northeast, South, and West, with a 4.1% increase in the Midwest, according to Reuters. This growth has occurred despite mortgage rates resuming their upward trend, with the average rate on the popular 30-year fixed mortgage rising to 6.57% by the end of May.

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Impact on the Market

The surge in new home sales is a positive sign for the housing market, which has been hit hard by the Federal Reserve’s rapid rate hikes – the fastest cycle since the 1980s, Reuters reports. Since March 2022, the Federal Reserve has increased its policy rate by 500 basis points and indicated two additional rate hikes this year to temper demand in the broader economy. This has led to concerns about the impact on real estate investors.

Looking Forward

Despite these challenges, the housing market appears to be on the rebound. The increase in new home sales suggests a positive outlook for related ETFs such as the SPDR S&P Homebuilders ETF XHB and the iShares U.S. Home Construction ETF ITB. However, investors should keep an eye on the Federal Reserve’s actions and the potential impact of rising mortgage rates on the housing market.

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