New Home Sales Drop, Still Strong

The headline 9.3 percent decline in new home sales for December masks what is actually a solid new home sales report. December's 625,000 annualized rate is the fourth best of the expansion and follows November's revised 689,000 rate which is the very best. And importantly supply moved into the market, up 3.9 percent at 295,000 units. On a sales basis, supply improved to 5.7 months from November's 4.9 months.

Prices were steady in the month with the median edging up 0.1 percent to $335,400 for, however, very modest year-on-year improvement of only 2.6 percent. But prices may have room to move higher given that the sales rate is up 14.1 percent on the year with supply up 15.2 percent.

The downward revisions in today's report are significant, totaling 69,000 going back to October but this is really no surprise given how volatile this report always is. But the bottom line is upward sales momentum, incoming supply and room for prices to move higher. Residential investment has been dragging down GDP in recent quarters but today's report points to a solid contribution for tomorrow's fourth-quarter report.

Recent History Of This Indicator:
The new home sales report is known for its volatility which was apparent in November as the annualized rate surged to 733,000 for a 17.5 percent monthly spike, the largest in 25 years. But rates in the two prior months, at 624,000 and 635,000, were also unusually strong and marked a pivot higher for the series. The consensus for new home sales in December is a very solid 680,000 rate.