New Home Sales Pivot Higher

New home sales are definitely pivoting higher, at a 713,000 annual rate in August that easily tops Econoday's consensus range. Underscoring the strength is a sharp upward revision to July to a 666,000 rate that helps lift the 3-month average to 703,000 which is the best showing for the average since October 2007 and just before the subprime collapse.

Builders enjoyed significant price traction in August that lifted the median by a monthly 7.5 percent to $328,400. Year-on-year, the median is up from mid-single-digit contraction to plus 2.2 percent. And prices may climb further based on a shrinking number of new homes on the market, down 1.2 percent to 326,000 and, relative to sales, at 5.5 months from July's 5.9 months.

A key region for builders is the West where sales surged 16.5 percent in the month. The South is also a key region and a very large one and sales here rose 6.0 percent. The Midwest and especially the Northeast are smaller regions for home builders and sales here both fell in the month.

But this report is clearly about strength, and accelerating strength that is getting a major boost from low mortgage rates and major support from the strong US labor market. Residential investment has pulled down GDP for the last six quarters in a row but increasingly looks to be a positive for the third quarter in results that would support the hawks at the Federal Reserve who are looking to limit, if not reverse, recent rate cuts. Last week's sales data for existing homes also showed improvement with data on pending sales of existing homes to be posted tomorrow.