April New Home Sales / First Quarter FHFA Home Prices


Joel L. Naroff
President and Chief Economist

INDICATOR: April New Home Sales / First Quarter FHFA Home Prices

KEY DATA: Sales: +2.3%; Median Prices (Year-over-Year): +14.9%/FHFA Home Prices (Year-over-Year): 6.7%

IN A NUTSHELL: “Limited supply and growing demand is the ticket to higher prices and that is exactly what is happening in the new home market.”

WHAT IT MEANS: The news from the housing market is nothing but good. New home sales rose in April, though the gains were no very well distributed across the nation. Demand was off double-digits in the Northeast and less sharply in Midwest. Meanwhile, sales improved in the South and jumped in the West. That was a reversal in form from March, so let’s just say these monthly changes shouldn’t be taken too seriously. Over the year, every region is up with sales surging 29% in the nation. For the first four months of this year, demand is up about 27% compared to the same period in 2012. That pretty much tells it all. While people are out there buying, builders are not rushing to put a whole lot of inventory up for sale. The supply of new homes is going up but it not matching the rise in purchases. The result is that prices are jumping.

The price increase in the new market is not an aberration as gains are also being seen in the existing market. The Federal Housing Finance Agency’s first quarter 2013 price index posted a solid rise from the end of 2012 and the gain over the year was also strong. The index is now back to the same level as November 2004.

MARKETS AND FED POLICY IMPLICATIONS: The housing market has been leading the way but there are now some concerns whether that can continue. A jump in Treasury rates is leading to a rise in mortgage rates. The first to go is refinancing. Initially, home buyers who had been sitting on the fence may jump off fearing further increases in rates. But then there could be a slowing in demand as some people are priced out of the market. However, thirty-year rates below four percent are not very high so I don’t expect the impact to be great. And right now we have had a knee-jerk reaction to rumors that the Fed might be willing to cut back on its pedal-to-the-metal approach to monetary policy. Mr. Bernanke’s testimony yesterday did not provide much support for those views so it will be interesting to see where rates go over the next few weeks. Keep in mind, sequester and tax increases are kicking in so second quarter growth may not be that great and the negative impacts are likely to accelerate through the summer. As for investors, Japan’s sharp decline is a reminder that markets that go too far too fast are subject to corrections.

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