New Home Sales Take Steep Drop

A downturn out West helped pull new homes sales down a steep 9.2 percent in January to a lower-than-expected annualized rate of 494,000. The level, however, is still respectable given that there is no revision to December which stands at a very solid 544,000. Sales in the West, which is a key region for the new home market, fell 32 percent in the month which pulls down the region's year-on-year rate to minus 24 percent. The South and Midwest show only marginal year-on-year contraction with the Northeast, the smallest new home region however, up sharply.

Price discounting seems to be at play as it was in yesterday's existing home sales report. The median price fell 5.7 percent in the month to $278,000 for a year-on-year decline of 4.5 percent. Sales had been ahead of prices before this report but not anymore, with a nearly double-digit year-on-year pace now falling into contraction at minus 5.2 percent.

Supply has been very slow to enter the market, the result largely of constraints in the construction sector. But more new homes did enter the market in the month, up 2.1 percent to 238,000 and supply relative to sales, given the slowdown in sales, is up sharply, to 5.8 months vs 5.1 months.

The slope for the housing sector has been volatile but is trending upward. Price discounts will help boost sales but will also pull down home-price appreciation which has been a central area of strength for household wealth.

Recent History Of This Indicator:
Samples are small and monthly data swing wildly but new home sales did surge going into year-end. The gains, however, were likely driven by discounting as the median price fell to a year-on-year minus 4.3 percent in December. Econoday forecasters are calling for slowing in January, to a 520,000 annualized rate vs December's outsized 544,000 that was, in the latest example of volatility, more than 40,000 over consensus.