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New Home Sales Continue Lukewarm Streak

RFP
New single-family home sales rose 3.5% in August to an annualized rate of 629,000. Year-over-year growth was 12.7%. Sales growth was concentrated in the West. The Northeast yo-yoed back to trend after a weak July. Sales in the Midwest rose while the South lost ground. Last month’s overall growth appeared to reverse a three-month slide though the housing market as a whole continues to be less than stellar.

Existing home sales were unchanged from July but down 1.5% compared to last year. Combined new and existing home sales were down slightly relative to last year. This last figure is somewhat misleading, as sales slumped in August 2017 due to hurricane damage. We are currently on path for a decline in combined sales in 2018.

The median price for a new home fell to $320,200, a slight drop from July. Sales prices in 2018 are running slightly below the 2017 annual average but still about $18,000 (4.5%) above 2016. Pricing trends in existing home sales echoed those in new homes sales.

On the whole, there is little in the price data to suggest that the market is becoming any more hospitable to first-time buyers. In fact, among buyers of existing homes, the share of first-time buyers fell to 31% in August. This is well below the 2017 average of 34%. Home builders say they would like to move downstream to new, more affordable construction. However, the cost of everything from materials to labor continues to rise, which limits the feasibility of a down-market move.

It is worth noting that new home sales in June and July were revised down substantially. The greatest downward revisions were in the West. Wildfires may have played a part. This implies that the three-month slide in sales from May was deeper than we initially thought. Given that the August increase was concentrated in the West, this month’s increase may well be wiped out in the revised figures.

Bottom Line
What does today’s report mean for the larger economy? Historically, housing is a strong leading indicator of the business cycle. So - if one believes that this cycle is like previous cycles - we might be headed for choppier waters. However, there are reasons to think that this cycle is different. Wage and price growth, for example, continues to confound us. New home sales are still below their minimum rate for 1995-2008. Perhaps the market is still a bit hungover from that binge? Personally, I favor this latter explanation. I hasten to add, though, that I do not think that this means that sunny times are here to stay.

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