US: New Home Sales

Tue Mar 24 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
New Home Sales - Level - SAAR 462K 433K to 485K 539K 481K 500K

In a positive jolt out of the housing sector, new home sales picked up sharply in February to a 539,000 annual rate. Adding to the good news is a big upward revision to January, to 500,000 from 481,000. These are the first two 500,000 readings going all the way back to April and May of 2008.

The gain drew down what was already thin supply on the market, to 4.7 months at the current sales rate vs 5.1 and 5.3 months in the prior two reports. The current reading is the lowest since June 2013 and will undoubtedly encourage builders to expand construction. The lack of supply, however, did not lift prices where the median fell a sharp 4.8 percent in the month to $275,500. Sellers, in fact, seem to be giving price concessions with the year-on-year price up only 2.6 percent.

Looking at sales by region shows a big surge in the Northeast where, however, sales levels compared to other regions are very low. Sales in the Midwest, which is also a small region for new home sales, fell sharply in the month as they did in the West, a large region for sales that represents 23 percent of all sales. Sales, however, were very strong in the South, a region that makes up a whopping 59 percent of all sales and where sales are back to where they were in February 2008.

Due to seasonal adjustments, the winter months are always bumpy for housing data. But today's report stands in contrast to what has been a dreary run of weak data out of the housing sector. And it does point to momentum going into the critical spring selling season. The Dow is moving off opening lows following the report.

Market Consensus Before Announcement
New home sales were little changed in January at a better-than-expected 481,000 annual pace and edging down only 0.2 percent, managed to hold onto December's big surge when sales jumped 8.1 percent to 482,000. January's strength was centered in what is by far the largest region, the South, where sales rose 2.2 percent. Sales slipped 0.8 percent in the West which was second, and a very distant second, in size to the South. Inventory has been on the thin side for the last 5 years but, at 218,000 units now on the market, was the highest since March 2010. But relative to sales, inventory still looks thin at 5.4 months which should encourage builders to step up activity.

New home sales measure the number of newly constructed homes with a committed sale during the month. The level of new home sales indicates housing market trends and, in turn, economic momentum and consumer purchases of furniture and appliances.

This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as new home sales, investors can gain specific investment ideas as well as broad guidance for managing a portfolio. Each time the construction of a new home begins, it translates to more construction jobs, and income which will be pumped back into the economy. Once the home is sold, it generates revenues for the home builder and the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items new home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month. Since the economic backdrop is the most pervasive influence on financial markets, new home sales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the new home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.