Implications: After soaring in July to the fastest pace since 2007, new home sales slipped back in August. However, the pace of sales in August was still relatively strong. Excluding July, it was the fastest sales pace since 2008 and sales were up 20.6% versus a year ago. Look for even faster sales in the year ahead. Although the inventory of unsold homes rose 4,000 in August, it remains very low by historical standards (see chart in PDF). Moreover, the gain in inventories in August was due to homes where construction has yet to start. In fact, the majority of sales in August came from these same properties that have yet to break ground, marking a shift from a year ago when completed homes represented the majority. This illustrates how builders are falling behind the demand for new homes and signals there is plenty of room to increase both construction and inventories. Despite today's drop it's important to remember that home sales data are very volatile from month to month. In fact, we think there are a few reasons to expect housing to remain a positive factor for the economy. First, employment gains continue and wage growth is accelerating. Second, the mortgage market is starting to thaw. Third, the homeownership rate remains depressed as a larger share of the population is renting, leaving plenty of potential buyers as conditions continue to improve. Unlike single-family homes which are counted in the new home sales data, multi-family homes (think condos in cities) are not counted. So a shift back toward single family units will also serve to push reported sales higher. Even though the median sales price of a new home is now down 5.4% from last year, this is likely due to a shift in the "mix" of homes sold, as other measures of home prices show continued gains.
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