U.S. new home sales: the good, the bad and the ugly

April 23, 2014

What’s happening with the U.S. housing market?

Ask three different economists and you’ll get three different answers.

While that’s not anything new, the different ways some analysts have spun the surprise — one of the biggest on U.S. data in many months — is exceptionally far from anything resembling a consensus.

New home sales – a leading indicator for housing – plummeted by 14.5 percent in March, totally wrong-footing the Reuters consensus of forecasters. They were expecting modest improvement after a decidedly poor winter for the U.S. economy on nearly all measures.










Here’s how some of them explained away the data.


The good

“Based on the data, it is easy to conclude that housing demand is rolling over, perhaps due to higher mortgage rates. Yet, this conclusion is out of synch with home prices which continue to appreciate rapidly and indeed show no sign of slowing. We believe that the answer to these seemingly diverging trends lies on the supply side. Measured as a percentage of the housing stock, total housing inventory – including shadow or pending supply – stands at the lowest level since 2005, when the housing boom was in full swing. While inventory shortages may be curtailing sales, they are unambiguously positive for residential construction and for the broader economy going forward.” — Aneta Markowska and Brian Jones, Societe Generale


The bad

“Very weak results, with new home sales down 14.5% to a 384,000 unit annual rate.  It’s hard to make much sense out of the recent pattern of these data as currently reported.  January sales in the worst of the winter weather were revised up to 470,000, a six-year high, and supposedly since surging to a cycle high during the polar vortex, sales have now plummeted 18% in the past two months as the weather has improved and mortgage rates have moved a bit lower.  Low supplies of homes for sale probably contributed to softer recent sales and boosted prices, but much of the recent volatility in sales is likely sampling noise, and a record increase in prices mostly resulted from a large shift in the mix of homes sold.  This data point should be discounted, in our view, but on an underlying basis housing does seem to be a notable lagging area as other parts of the economy show signs of broadly improving with the weather, with credit and inventory issues in the West weighing on home sales in recent months.” — Ted Wieseman, Morgan Stanley


The ugly

“New home sales are a leading indicator for the housing market, as sales are counted when contracts are signed, not when a closing takes place.  With inventory at a three and a half year high, prices at all-time highs, and sales plummeting, something has to give.  There are two short-term options:  credit standards loosen in order to boost sales (sound familiar?) or prices fall as supply and demand find equilibrium.  The third option, and most likely, is a combination of the two.  In this case, expect moderate sales to continue, but anyone who was counting on housing to spur the economy will be disappointed.” –– Jay Morelock, FTN Financial


Either way, new home sales are still a long way down from recent history.

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