New Home Sales

Highlights Most of the fundamentals right now for the new home market are very favorable especially low supply which, despite perhaps keeping current sales down, points to rising construction and rising sales ahead. New home sales are at a new recovery high, at a higher-than-expected 497,000 annual rate in June vs Econoday expectations for 481,000. But the 16,000 difference between the result and expectations is offset, to a degree, by large downward revisions in the prior two months that total 30,000. But it's the direction of the latest month that counts the most and here the result points convincingly to momentum. The availability of new homes on the market is extremely tight, at only 3.9 months at the current sales rate. A separate report from home builders issued earlier this month shows by far the strongest confidence of the recovery, a reflection of how low the supply is and how big the need is for new homes. Prices have been very strong in the home market though today's report shows a second month of sharp declines on the new home side, down 5.0 percent for the median to $249,700 and down 4.0 percent for the average to $295,000. But the year-on-year rates, in the high single digits for both, are very respectable and in line with other home price readings including yesterday's FHFA report. Down or not, the extremely tight supply points squarely to pricing power ahead for home builders. Regional details show mixed results with sales in the Northeast, South, and West up on the month but sales in the Midwest down. But the gains in the South and West, which are by far the two biggest markets for new homes, are the most important readings with the year-on-year gain in the South at an eye-popping 47 percent! Today's report on net is a plus for the housing sector where recent data, in part because of rising mortgage prices, have been soft. The Dow is moving down in initial reaction to today's report, perhaps reflecting concern that momentum in the new home market could pull forward Federal Reserve tapering.

Market Consensus before announcement New home sales came in at a stronger-than-expected annual rate of 476,000 in May. Upward revisions totaling 19,000 in the prior two months underscored the strength. A big issue holding back sales has been limited supply. But this appears to be changing somewhat. Supply is moving higher as builders pick up the pace. Supply on the market rose 4,000 in the month to 161,000 units. On a monthly sales basis, supply was at 4.1 months versus 4.0 months in April.