It’s Still Mostly Good

We thought that new-home sales would post a bit higher than they did. After all, home-builder sentiment has been on the rise and is at a multi-year high. What’s more, July saw a 12.4% surge in new-home sales to 654,000 units on an annualized rate.

Unfortunately, the momentum proved unsustainable, at least for August. New-home sales posted at 609,000 units on an annualized rate for the month. This is obviously quite a bit lower than July’s sales, and quite a bit lower than our expectations.

But taking a glass-half-full view, we see that August sales really aren’t all the disappointing, because the long-term trend remains up. Year over year, new-home sales are up 20.6%. Year to date, sales are up 13.3% compared to the same year-ago period.

New-home buyers are at least seeing more affordability. Prices have fallen in recent months, which points to builder discounting. The median price, at $284,000, is down 3.1% on the month and down 5.4% on the year. In addition to discounting, there are signs that more lower-priced new homes are hitting the market. This is an obvious positive for drawing more younger first-time buyers into the market.

Housing – new-housing activity, in particular – has been the one persistent and dependable growth engine in the U.S. economy. Paradoxically, housing’s strength could be another reason the Federal Reserve continues to postpone an interest-rate increase. The Fed doesn’t want to risk stalling the one engine that’s firing on all cylinders. Then again, if the U.S. economy is as strong as some of the Fed officials believe, then the housing engine should be able to endure higher interest rates without stalling.

As for the economy, it’s growing, but hardly at a gangbuster pace. Second-quarter gross domestic product (GDP) was revised up this week to 1.4% on an annualized rate.  From a historical perspective, 1.4% annual growth is just “okay.” The good news is that the economy saw an uptick in nonresidential investment and consumer spending. Whether that’s enough to turn Fed sentiment more hawkish on interest rates remains to be seen.

 Information provided by Jessica Regan.

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