New Home Sales

July 24th, 2015 10:34 am | by John Jansen |

Via Stephen Stanley at Amherst Pierpont Securities:

New home sales were considerably softer than expected in June, posting a 482,000 annual pace, the lowest reading since last November.  In addition, the April and May figures were revised noticeably lower, yielding a significantly more restrained trajectory over the first half of the year.  Even so, sales are still substantially more robust this year than in 2014, as the year-to-date average is 520K, vs. 430K in 2013 and 440K in 2014.  Thus, even the disappointing June reading still represents progress over a longer time horizon.  Moreover, the surge in existing home sales over the past two months means that overall home sales remain on an uptrend despite June’s fall in new home sales.  In fact, the June tally of 5.97 million units annualized is the highest monthly reading since 2007.

Having said that, today’s data is unambiguously disappointing.  However, given the context, I am not overly worried.  Anecdotally, industry sources suggest that demand has been robust this year, sparking a shortfall of homes for sale and resulting in bidding wars in many areas.  Thus, I view today’s reading for the typically volatile new home sales data as statistical noise, most likely just a hiccup on the path to a healthier housing sector.

The good news is that, even as sales cooled, builders remained busy in the month.  The number of homes on the market increased significantly, pushing the months’ supply to 5.4, up noticeably from 4.8 in May though still consistent with a sellers’ market.  Hopefully, supply constraints will ease going forward, as builders lately seem more willing to aggressively construct new homes than at any time since the bust.  If I were worried that demand is about to collapse, this could be a concern, but I am not.  Rather, more supply right now is exactly what the housing doctor ordered.

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