|New Home Sales - Level - SAAR||515K||500K to 531K||552K||507K||522K|
Because of a small sample, new home sales can be very volatile month-to-month as they are in the August report where, at 552,000, the annual rate came in far above the high-end estimate. This is the highest rate since February 2008. Adding to the momentum is a 15,000 upward revision to July.
In especially welcome news for builders, the sales strength pulled supply relative to sales even lower, to 4.7 months from 4.9 months. Still, low supply is a constraint on sales in contrast to pricing which remains favorable, at a median $292,700 for a 0.5 percent gain on the month but at a paltry year-on-year gain of only 0.3 percent. By comparison, the year-on-year sales gain is 22 percent.
Regional data show August strength for the Northeast and more importantly the South which, for new home sales, is larger than all other regions combined. Year-on-year, sales in the South are up 28 percent which leads the regions. At the rear is the West where sales growth, however, is still in the double digits at plus 11 percent.
Volatility aside, this report is impressively strong and likely marks an upturn for housing data which, like Monday's existing home sales report, had been showing limited and uneven strength.
Market Consensus Before Announcement
A small rise is expected for new home sales where the consensus is calling for a 515,000 rate in August from July's 507,000. Limited supply has been holding back sales and any additional troubles in August could be blamed on stock market losses. Recent sales may be flat but year-on-year growth is very strong, trending at 20 percent.
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.