US Home Sales Up Almost 11% in May, Defying Fed Hopes to Lower Inflation

WASHINGTON (Sputnik) - Sales of new homes in the United States jumped almost 11% in May from a month earlier, according to data on Friday from the Commerce Department that overshot economists’ forecasts and underlined the Federal Reserve’s difficulty in restraining demand in a sector contributing to runaway inflation.

"Sales of new single‐family houses in May 2022 were at a seasonally adjusted annual rate of 696,000, " the Commerce Department said in a statement, adding: "This is 10.7 percent above the revised April rate of 629,000."

Economists polled by US media had projected just 590,000 new single-family homes to be sold in May.

The department said demand for new single-family homes did slide from a year ago, falling 5.9% from the May 2021 tally of 740,000.

Yet, the near 11% growth over last month implied that the Fed has a long way to go in curbing housing-driven inflation.

Inflation, as indicated by the Consumer Price Index (CPI), was at a four-decade high of 8.6% in the year to May. Housing-related components make up about 30% of the CPI’s structure, economists say.

US home prices on their own jumped 37% over the past two years. Mortgage rates, meanwhile, have surged from 3.2% to 5.88% in the past six months. The combination has pushed up the cost of home ownership in the United States to the highest in a generation, officials say.

Some say month-to-month housing numbers are sometimes volatile and the May data may not be reflective of the slowdown that’s coming in the sector.

But unless data in coming months show that Americans are no longer paying whatever it takes to own a home, the Fed will likely have to do more with rate hikes.

After leaving rates unchanged at between zero and 0.25% during the two-year long coronavirus pandemic, the Fed has raised them three times since March. As of June, rates stood at between 1.50% and 1.75%. The central bank has said it will continue with hikes until the current inflation rate of more than 8% returns to its target of 2% per annum.

Economists, however, fear that the Fed will push the economy into a recession with its quantum of hikes. June's 75-basis point, or three quarter percent point, increase by the Fed was the highest in 28 years. The economy contracted by 1.4% in the first quarter of the year and will technically slip into a recession if it does not return to positive growth by the end of the second quarter.