US: New Home Sales

Tue Aug 25 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
New Home Sales - Level - SAAR 516K 494K to 531K 507K 482K 481K

New home sales rose solidly in July from a downdraft in June, up 5.4 percent to a 507,000 annual pace. Year-on-year, sales have surged, up 26 percent. The strength in sales has thinned an already tight market where supply is at 5.2 months, down from 5.3 months in June and compared with 6.1 months a year ago.

Regional data show a surge for the Northeast where, however, readings are skewed by very low sales rates. Still, the Northeast is out front with a year-on-year gain of 39 percent followed by the West at 30 percent and the South, which is much bigger than all the other regions combined, at a very strong 29 percent. The Midwest is lagging at no change.

Price data are of special interest given signs of weakness in this morning's FHFA and Case-Shiller reports. And here the story is much the same. Though the median price did rise 3.0 percent in the month to $285,900, the year-on-year gain, however, is only 2.0 percent which is a tiny fraction of the sales gain.

Though prices may not be soaring, supply is low and rates are low which should continue to encourage builders to enter the market. The housing sector may not be soaring, but it is a center of strength for the economy.

Market Consensus Before Announcement
New home sales have been flat this year in contrast to existing home sales which are strong. But new home sales are expected to rebound a very sizable 7.1 percent in July to an annual rate of 516,000. Note that month-to-month readings in this report can be very volatile.

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.