Sales of new homes in the U.S. increased 7.1%

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Fri, Oct 11, 2019 at 10:40AM

Sales of new homes in the U.S. increased 7.1%

The numbers: Sales of newly-constructed homes in the U.S. increased 7.1% on a monthly basis in August to a seasonally-adjusted annual rate of 713,000, the government reported Wednesday.

That’s up from a revised rate of 666,000 in July, and is just shy of the 12-year high set in June. Compared with August 2018, new-home sales were up 18%.

Because of the small sample size used to produce the new-home sales figures, the report is fairly volatile and prone to large revisions. For instance, the pace of new-home sales in June was later revised to 729,000 after an initial reading of 646,000.

Despite the erratic nature of the new-home sales figures, the overall trend suggests that sales activity is indeed rising in 2019. The average rate so far this year is 671,000, High Frequency Economics chief economist Jim O’Sullivan said, which is up from the pace of 615,000 for all of 2018.

What happened: Home sales did not increase across all the major regions throughout the United States. While home sales activity revved up in the South and the West, it slowed in the Northeast and Midwest.

At the end of August, the government estimated there was a 5.5-month supply of homes available for sale, slightly below the six-month threshold that represents a balanced market. In December, the supply of homes peaked around seven months. The decline since then could push new-home prices higher and encourage builders to ramp up construction activity, Pantheon Macroeconomics chief economist Ian Shepherdson said.

As sales activity has picked up, home prices have resumed their upward climb. The median price of a new home increased to $328,400 in August from $312,800 the month prior.

Big picture: This summer’s decline in mortgage rates continued to be the gift that keeps on giving. Low mortgage rates were already shown to have sparked a major uptick in home-building activity in August, and sales of new homes naturally followed. “U.S. housing market activity is responding positively to lower rates, another reason why the U.S. economy doesn’t need the extent of interest rate cuts that are priced into financial markets currently,” said Katherine Judge, an economist at CIBC Capital Markets.

Another factor that’s driving sales of newly-built homes is the overall tight supply of homes for sale. “Home buyers are increasingly looking to newly constructed homes with the available options for existing homes so few,” said Nationwide senior economist Ben Ayers.

Nevertheless, global economic concerns and the trade war with China remain as potential headwinds for the housing market. And if recessionary fears come true, a downturn in hiring could ding consumer confidence and give would-be buyers pause.

What they are saying: “Mortgage applications for purchase pulled back in August from cycle highs (but have improved in September), as concerns about the trade war and economy appeared to overshadow cheaper borrowing costs,” Sal Guatieri, senior economist at BMO Capital Markets, wrote in a research note ahead of Wednesday’s data release.

Market reaction: The Dow Jones Industrial Average and S&P 500 dropped in Wednesday trades as markets were rattled by Democratic House Speaker Nancy Pelosi’s announcement of a formal impeachment inquiry of President Trump. The 10-year Treasury note’s yield, meanwhile, initially rose on the news.

Shares of home-building firms, including PulteGroup, D.R. Horton, and Lennar Corp. were up slightly in morning trading.

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