New Home Sales Show Weakness

Positives are hard to find in a May new home sales report that will renew concerns over the strength of this year's housing sector, a sector that had been on the mend. But May's 626,000 annual rate for new home sales is far below Econoday's consensus range and is the lowest rate since December.

The 3-month average, which is an essential tool that helps smooth the unusual volatility of this report, is showing less weakness. Down 14,000 to 670,000 the average did post its first decline of the year but it is still 91,000 higher than December. Existing home sales have shown a more subdued but similarly favorable pattern.

But the average is really the only positive as price data fell sharply, down 8.1 percent on the month to a median $308,000. Year-on-year, the median is down 2.7 percent and right in line with the 3.7 percent decline in sales.

And the bad news extends to the regional sales data. The West is a key region for home builders and sales here plunged 36 percent on the month to a 125,000 annual rate. The Northeast also posted a decline with, however, the Midwest and South both posting mid-single digit increases.

Supply moved into the market, up 0.3 percent to 333,000 and given the drop in sales is now at a more than ample 6.4 months vs 5.9 months in April. But improvement here is small consolation.

May was also a poor month for the labor market which could have had a marginal bearing on new home sales as could, in theory, concerns over the stock market and trade wars, factors that appear to have shaken June's consumer confidence report which was also released this morning. For the Federal Reserve, the sudden downturn in May new home sales coincides with their concern over recent weakness in other parts of the economy, namely business investment, and adds further to the odds for a July rate cut.