NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist
INDICATOR: August New Home Sales
KEY DATA: Sales: up 7.9%; Median Prices (Year-over-Year): up 0.6%
IN A NUTSHELL: “Builders breathed a sigh of relief in August as sales rebounded sharply from the July crash.”
WHAT IT MEANS: The housing market is the focus of attention as rising rates have been creating large uncertainties about its direction. In July, new home sales fell off the table, dropping an eye-opening 14.1% to its lowest pace since October 2013. The worry that set in was that this portion of the market, where the data are contracts not closings as is the case with existing home sales, was already experiencing rate shock. Well, that may be happening but at least there was some snap back in August demand. Builders managed to get more people to sign on the dotted line in all areas except the West. Something is happening out West as the sales pace was the lowest since March 2012. I just don’t know what that is. On the price side, sales shifted into the lower priced segments of the market and the increase over the year was minimal. A jump in supply may have played a role but the limited price increase stands in stark contrast to what the Case Shiller home price index showed. This report, which was released yesterday, indicated continued strong price gains in July. It will be interesting to see if those increases continued in August or as the new home numbers show, they moderated. Nevertheless, the rise over the year of 12.4% indicates that there is no slowdown in home price pressures.
MARKETS AND FED POLICY IMPLICATIONS: It was nice to see a rebound in new home sales even if they still have a long way to go before they are back to longer-term stable levels. With existing home demand rising as well, it was a good month for relators and builders. That is good news for the economy. Will it continue? The Fed’s decision to not begin tapering has led to a rapid drop in rates and that should help. The 10-year Treasury note is down about 25 basis points since the meeting and 35 basis points since early September. Mortgage rates will follow downward but whether that generates more sales or just allows the fence-sitters to exhale is unclear. Regardless, rising home demand is critical to continued economic growth especially since the Washington Wackos are at it again. While most Senators seem to understand that you cannot shut down the government, it is not clear if many in the House have any clue. And the debt ceiling debate is still ahead. As I have said so many times, the only thing we have to fear is Washington itself. Be afraid, be really afraid.
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