Implications:  New home sales surprised to the upside in April, easily beating consensus expectations to post the largest monthly gain in nearly two years.  Looking at the big picture, buyers purchased 743,000 homes at an annual rate. While that may be well below the highs of the pandemic, sales are at the fastest pace since 2022 and are now modestly above pre-pandemic levels.  Looking at the details, gains were broad based in April with only the Northeast posting a decline. Though we expect a modest upward trend in sales in 2025, the housing market continues to face challenges. The biggest (and most obvious) is financing costs. The Fed has recently paused their rate cuts, meaning the housing market is on its own for the time being. That said, April’s gain happened despite rising interest rates, with the average 30-yr fixed mortgage back near 7%. One piece of good news for potential buyers is that median sales prices are down 2.0% in the past year, and down 11.5% from the peak in October 2022.  The Census Bureau reports that from Q3 2022 to Q1 2025 (the most recent data available) the median square footage for new single-family homes built fell 5.6%. So, while part of the drop in median prices is due to smaller/lower-cost homes, there has also been a drop in the price per square foot.  This may be the result of developers offering incentives to buyers in order to move inventory. Supply has also put more downward pressure on median prices for new homes than existing homes.  The supply of completed single-family homes is up over 270% versus the bottom in 2022. This contrasts with the market for existing homes which continues to struggle with an inventory problem, often due to the difficulty of convincing current homeowners to give up the low fixed-rate mortgages they locked-in during the pandemic. While the future cost of financing remains a question, lower priced options and an abundance of inventories will help fuel new home sales in 2025.  Finally, in recent manufacturing news, the Kansas City Fed Manufacturing Index, a measure of factory sentiment in that region, rose to a still weak reading of -3 in May from -4 in April.

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