New Home Sales Solid

New home sales in September, up 3.1 percent to a 593,000 annualized rate, proved very solid though sharp downward revisions to both August (575,000 from 609,000) and also July (629,000 from 659,000) do lower the degree of what is still, however, solid strength in the new home market. Year-on-year, sales are up 30 percent in what is a sharp contrast to the fractional 0.6 percent gain on the resale side.

A clear positive in the report is a gain in prices, up 6.7 percent in the month to a median $313,500. And further price gains can be expected as the year-on-year gain, in contrast to the surge in sales, is only 1.9 percent.

Holding back activity, however, will be supply which remains limited, at 4.8 months vs 4.9 months in August and 5.8 months in September last year. New homes on the market stand at 235,000, nearly unchanged from 236,000 and 234,000 in the prior two months.

Regional sales data show a 3.4 percent gain for the South to a 338,000 rate, offset by a 4.5 percent decline in the West to 147,000. The two smallest regions posted gains with the Midwest up 8.6 percent to 76,000 and the Northeast up 33 percent to 32,000. Year-on-year rates for the two leading regions are both strongly positive with the South up 26 percent and the West up 32 percent.

Revisions are always a major wildcard for this series where sample sizes are small which puts the emphasis on averages. Here the story is solidly positive with the third-quarter average at 599,000 vs 565,000 in the second quarter. Strength in the new home sector, despite low supply and construction constraints, remains one of this year's top economic stories.

Recent History Of This Indicator:
New home sales came on strong during the summer, averaging an annualized rate of 616,000 that is 25 percent higher than last summer. But strong sales have been depleting supply which is very low and have been holding down what could be even stronger sales. Forecasters see September's rate coming in at 601,000 in what would be a limited 1.3 percent decrease from 609,000 in September. The new home sales report excludes multi-family homes and tracks only the key single-family home category where permits, in a sign of optimism for future sales, have been on the climb.