New Single-Family Home Sales Increased 2.2% in May
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Implications: Excellent report out of the housing market today as purchases of new homes rose to the fastest pace in seven years, signaling that buyers are once again on the hunt. Sales of new homes rose 2.2% in May, exceeding even the most optimistic forecasts, and are up 19.5% from a year ago. This is one reason we think the Federal Reserve will move forward with raising rates by September. In fact, all the talk about the Fed raising rates is probably getting some buyers into the market sooner, thinking they can avoid paying higher mortgage rates in the future. Meanwhile, today's data is very good news for homebuilding activity in the year ahead. The months' supply of new homes fell to 4.5 in May from 4.6 in April as sales picked up but inventories remained unchanged. And although the raw inventory of unsold new homes is up in the past year, all of the increase is due to homes where construction hasn't even been started. The number of completed homes sitting unsold is unchanged from a year ago, and still at very low levels, while the number of unsold new homes still under construction is down from a year ago. As a result, builders have plenty of room to increase both construction and inventories. However, sales still remain depressed relative to history. We think there are a few reasons for this. First, a larger share of the population is renting. Second, buyers have shifted slightly from single-family homes, which are counted in the new home sales data, to multi-family homes (think condos in cities), which are not counted in this report. Third, although we may be starting to see a thaw, financing is still more difficult than it has been in the past. Each of these is beginning to change. Recently, single-family housing starts have showed some signs of picking up relative to multi-family starts, suggesting builders (the quintessential entrepreneur) see a larger appetite for homeownership and single-family home purchases. In other housing news this morning, the FHFA index, which measures prices for homes financed with conforming mortgages, increased 0.3% in April and was up 5.3% from a year ago. In the twelve months ending in April 2014 and April 2013, the index was up 6.0% and 7.2%, respectively. In other words, while home prices continue to rise, they're doing so at a slower rate as a more robust pace of home building brings supply closer in-line with demand. Expect more of the same in the year ahead.

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Posted on Tuesday, June 23, 2015 @ 11:25 AM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.