US: New Home Sales

Thu Apr 23 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
New Home Sales - Level - SAAR 518K 470K to 569K 481K 539K 543K

One day up, one day down is a fit description for recent housing data. Last week's declines in housing starts & permits were a surprising blow to the outlook, reversed in part by yesterday's very strong report on existing home sales. But today it's bad news again as new home sales fell a very steep 11.4 percent to a 481,000 annual rate.

The bulk of the decline came in the largest region, the South, where sales fell 15.8 percent. The drop here does follow a 9.3 percent gain in the prior month but the latest result is not good news for the region's builders. Also contributing to the decline was the Northeast, but sales in this region are very small, as well as the West, a much larger region where sales were down 3.4 percent. Sales in the Midwest rose 5.9 percent in the month.

More new homes actually came onto the market in March, up 4,000 to 213,000 nationwide, but supply relative to sales rose sharply because of the drop in sales, to 5.3 months from 4.6 months. This reading, however, is still pretty thin and won't scale back builder plans.

Softness in sales is confirmed by price data where the median price fell 1.5 percent to $277,400. Year-on-year, the median price is down 1.7 percent while sales are up 19.4 percent, a discrepancy that points to price discounting by builders.

It's difficult to draw firm conclusions from this report because of the sample size which is often small and therefore increases volatility in the readings. But today's report echoes last week's housing starts & permits data and points to stubborn weakness in the new homes market.

Market Consensus Before Announcement
New home sales picked up sharply in February to a 539,000 annual rate. Adding to the good news was a big upward revision to January, to 500,000 from 481,000. These were 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 versus 5.1 and 5.3 months in the prior two reports. The February reading was the lowest since June 2013 and will undoubtedly encourage builders to expand construction.

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.