Surprise Drop in New Home Sales

New home sales fell short in July compared with sharp upward revisions to the June figures. July sales dropped 12.8% to a seasonally adjusted, annualized rate of 635,000 units. June figures were revised up to 728,000, the highest since July 2007.

The losses in July were concentrated in the under-$300,000 price range, an indicator that further deterioration of entry-level supply could keep first-time buyers out of the housing market for longer. The median price in July was $312,800.

Regional losses month-to-month were broad-based, save for a blip up in the Northeast. The only year-over-year sales drop occurred in the West; all other regions posted gains.

In the market for existing homes, by far the largest part of the housing market, sales reached 5.42 million seasonally adjusted units in July, the first positive year-over-year change since February 2018. Existing sales rose 2.5% compared to June, which was adjusted up by 200,000 units to 5.29 million sold. The median sales prices continued to rise at $280,800 in July, the 89th consecutive month of annualized gains, according to the realtors’ association. Entry-level supply remains very tight; total inventory is only about 4.2 months supply.

Mortgage rates remain near historical lows with the average 30-year rate at 3.55% this past week, the lowest in almost three years. Refinancing applications accounted for two-thirds of the volume but the actual number of applications slowed this past week.

Bottom Line
Data revisions point to a stronger housing market than previously described. With consumer spending strong and mortgage rates low, we could see another round of revisions to the upside in July new home sales, which would reverse the unexpected drop.

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