Volatile New Home Sales Report Surges

Volatility is the name of game for the new home sales report where July's headline surged, up a monthly 12.4 percent to a 654,000 annualized rate. A very small offset is a very modest 10,000 downward revision to June which now stands at 582,000. May is unrevised at 572,000. All these levels are at cycle highs while the sequential gains hint at sky-high momentum.

The surge in sales is apparently getting a big boost from seller discounting as the median price fell 5.1 percent to $294,600. The year-on-year price is suddenly in the negative column at minus 0.5 percent. These results confirm other indications of price softness, including recent FHFA and Case-Shiller data.

Lack of supply, in light of the sales gain, is becoming an even more pressing issue for housing. New homes on the market fell 7,000 in the month to 233,000 with monthly supply falling very sharply, to 4.3 months at the current sales rate from 4.9 months in June. In July last year, this reading was 5.2 months.

Strength in this report comes from the largest region which is the South where sales rose 18.1 percent to a 398,000 annualized pace. The Northeast, which is a very small region for new homes, surged 40.0 percent in the month but to only a 35,000 rate.

Housing data have been moving higher but not uniformly. Starts and permits data have been bumpy as has construction spending. But this report, together with data on sales of existing homes, are moving decisively to cycle highs and are pointing to housing as possibly the biggest positive surprise of the 2016 economy. Watch for July existing home sales report on tomorrow's calendar.

Recent History Of This Indicator:
Forecasters see new home sales easing in July after a cycle high showing in June, to a 580,000 annualized rate from June's 592,000. Details of the June report were also very strong including a jump higher in prices which, however, were still lagging sales substantially which points to discounting by home builders. An increasing negative for sales is scarcity of new home sales on the market, the result in part of the strong sales rate.