New-home sales in May rose at the fastest pace in more than two years as low prices and record-low mortgage rates enticed buyers.
Across the country, sales of new single-family houses rose 7.6 percent from April to May and nearly 20 percent compared with last year to a seasonally adjusted annual rate of 369,000, according to the U.S. Commerce Department.
Such transactions also jumped in the Twin Cities metro area, rising nearly 23 percent compared with last year, according to the Minneapolis Area Association of Realtors, which tracks sales that are listed through the Regional Multiple Listing Service. That's the highest number of monthly sales in nearly two years.
"Traffic and sales were strong," according to Marv McDaris, Minnesota division president for Pulte Homes.
McDaris and other builders say they've seen a considerable uptick in sales in recent months, much of which has been fueled by a limited supply of existing houses, forcing buyers to consider building.
In some parts of the Twin Cities, there is only a four-month supply of existing homes on the market, nearly half of what's needed when the market is considered in balance. Higher sales are depleting the supply of listings. And many would-be sellers aren't in the market because they owe more than their house is worth or they're waiting for higher prices.
Inventory is down for new houses, as well. Across the country there's a 4.7-month supply of homes at current sales rates, leading some to worry about a shortage.
"There are fewer choices for prospective buyers and that has probably impacted the improvement in new-home activity more than anything," McDaris said.
For Pulte, Plymouth has been the strongest market -- the company sold 30 house there in the first five months of the year -- but Minneapolis continues to outpace the market for overall construction activity because of strong demand for rental apartments.
Rising demand has helped lift prices. Across the country the median price of new homes sold was $234,500, a 5.6 percent-increase compared with last year. And in the Twin Cities metro, the median price of new homes that closed during May was up 2.9 percent to $300,000, according to the Minneapolis Area Association of Realtors. That new-home sales information, which includes single-family houses, condos and townhouses, represents less than half of all new homes that are sold in the Twin Cities. Prices of existing homes were up a healthy 10 percent, largely a reflection of declines in less-expensive foreclosure and short sales.
Such reports are helping bolster consumer confidence, but they're also affirming what builders are seeing in their sales centers. Earlier this month the National Association of Home Builders said that its builder confidence index rose one point in June to the highest level in five years, while the local association said that the number of units planned for the Twin Cities during May was up by double digits.
After years of waiting on the sidelines, developers are actively pursuing new projects. On Monday, for example, Ryland Homes said it was opening two developments in the Twin Cities metro: Hampton Hills in Plymouth and Highland Knoll in Woodbury, both of which will open later this summer.
And last week Toll Bros. said it was starting construction of a 52-unit development in Eden Prairie, which it will begin selling in mid-July. Already, interest has been strong. Though the company won't start selling building lots until mid-July, the company is already getting inquires after posting plans on its website.
"We've had a tremendous response so far," says Alex Martin, assistant vice president for the company's Minnesota division. "Since we released the site map, we've had many tell us they have already walked the land and know where they want their home."
Jim Buchta • 612-673-7376