Paxforex – US New Home Sales Surge 7.9%

USD bulls received good economic news out of the US today. New home sales rose 7.9% in August to a 421,000 unit annual rate. While the news were positive it comes on the back of July’s 14.1% drop to 390,000. The housing sector is largely attributed with the current economic recovery, as sluggish as it may be.

As mortgage rates started to increase, worries crept in that it will dampen new home sales and therefore derail the fragile and jobless recovery we currently witness. On the contrarian side, would be buyers may have stepped up their planned purchases before mortgage rates will increase further and we may witness a sharp contraction in the fourth-quarter of 2013 and going forward.

Homebuilders are extremely bullish on the housing sector which is a rather negative sign. It was the same bullishness which led to the collapse in the US housing sector in 2008. Year-on-year sales increased by 12.6%, but still remain well below the 700,000 mark most argue points to a healthy housing market.

New homes available for sale came in at 175,000 units which is an increase of 3.6% which represents roughly five months’ worth of supply. We may see an increase in this figure as homebuilders remain bullish, but sales will deteriorate. Sales of existing homes rose to a six year high of 5.5 million annualized.

The median home price for new homes decreased by 0.7% to $254,600 compared to July. The National Association of Realtors did caution that August may represent a peak and that traffic was already on the decline. We may see a serious of declines to close 2013 which will put downward pressure on the US economy.

Overview of new home sales by region:

  • Northeast – Increase of 8.8%, this is the wealthiest region of the US and one of the main drivers for high quality economic growth
  • West – Decrease of 14.6%, this is the second wealthiest region of the US and August marks the second consecutive double digit decline which is a worrisome sign
  • Midwest – Increase of 19.6%, this is a good sign for the housing market and reflects the backbone of the US
  • South – Increase of 15.3%, this rounds up the increase in the poorest area of the US

Keep in mind that comparisons are form extremely depressed levels and a double digit increase or decrease does not carry as much weight as it would under the old standard for the housing market. We should see more volatility in housing numbers as we move forward.

Written by Paxforex