US: New Home Sales

Mon Oct 26 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
New Home Sales - Level - SAAR 549K 535K to 560K 468K 552K 529K

The housing outlook just received a jolt! New home sales fell to an annual rate of 468,000 in September which is 67,000 below Econoday's low-end estimate and the lowest rate since November last year. Making matters worse is a steep 33,000 downward revision to August.

The drop in sales together with a rise in homes on the market made for a big surge in supply, to 5.8 months from 4.9 months in August and 5.5 months from September last year. This turns around what had been a market of very thin supply to one of nearly adequate supply, with 6.0 months considered the balancing point between supply and demand. Homes on the market rose 4.2 percent in the month to 225,000 units.

One likely factor holding down sales is a rise in prices where the median rose 2.7 percent in the month to $296,900 which is 13.5 percent higher than a year ago. The year-ago reading last month was only up 0.3 percent in an example of how the extreme results of the September report have turned the data upside down. Price appreciation is now way out in front of year-on-year sales growth which is now only up 2.0 percent vs the August sales rate of 16.5 percent.

Regionally, sales plunged 62 percent in the Northeast where however the new home market is extremely small. But there are minus signs across the other regions too including the South, down 8.7 percent, and the West, down 6.7 percent.

Small samples can make for severe volatility and nowhere is this more apparent than in the new home sales report. Still, apart from methodology issues, the results in this report do not confirm what was, at least, a strong outlook for the new home sales market, one where optimism is high but, as evidenced in last week's housing starts report, permits have slowed.

Market Consensus Before Announcement
Samples are small and new home sales can move wildly, as they did in August and July with gains of 5.7 percent and 12.0 percent. Against these tough comparisons, a 0.6 percent dip is expected for September, one that wouldn't lower the outlook for what is - the new home sector - one of the strengths of the 2016 economy. Supply has been very low, at 4.7 months in September, but prices have been showing very little life with the median up only in the mid single digits.

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.