8.3.16 | 7 Year High for New Homes Sales – Rusty Tweed team
Demand Remains High for New Homes
Sales of new homes across the U.S. increased by 10% in the second quarter as prior month sales data were revised upward. Revisions to March, April and May data increased the sales tallies for those months by a total 22,000. The average pace across the second quarter, 576,000, is 10% more than the 524,000 for the first quarter.
Earlier this week, the Commerce Department reported that June sales rose by 3.5% to a seasonally adjusted rate of 592,000. This was above the economists’ prediction of 560,000 new units being sold a month. The median price of a new home is $306,700, 6% more than a year ago. New home sales are currently at their strongest since the recession hit in 2008.
The biggest surge in new home sales happened in the Midwest and West (the most significant surge since November 2007) seeing prices rise by over 10%. Both areas have seen a sharp rise in home prices within tight inventories. In the Northeast and South, sales actually dipped slightly. The Northeast saw sales fall by 5.6% whereas they only slipped by 0.3% in the populous South.
Barclays analyst Rob Martin wrote, “Despite some softness in prices reported earlier today, the housing market remains healthy. We expect housing to continue to firm, on average, over the medium term, with a buoyant household sector supporting both prices and volumes.”
New home purchases are only a tenth of all home sales; however, the data arrives amidst a host of other signs that growing numbers of Americans are buying homes. Strong job growth, slightly looser lending standards and historically low mortgage rates are all contributing to the surge in home purchases.
Rise in Confidence from Home Builders
Home builders are showing increasing amounts of confidence. Last week, PulteGroup (PHM) reported that it would be expanding its stock buyback program in the light of better-than-predicted earnings and revenue.
If builders do increase their construction this year, there are hopes this will help lift the wider economy. However, there are fears that mortgage rates will rise if the Federal Reserve raises a key interest rate, as is widely believed will happen later this year. The Fed, meanwhile, has indicated that any rate increases from the current near zero will be minimal and gradual. Economists believe that demographic shifts, including younger Americans starting families and continued growth in the labor market, will help the housing market overcome such obstacles.
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