Implications: New home sales blew past expectations in March, rising for their third consecutive month to nearly match the post-recovery high-water mark set in July of last year. Sales increased 5.8% in March and are now up 15.6% versus a year ago, demonstrating a rare stability in what is typically a very volatile series month-to-month. Meanwhile, despite a 3,000 increase in unsold new homes, inventories remain low by historical standards (see chart to right) and are not a headwind to future construction. All of the gain in inventories in March was due to homes where construction had yet to start, with the inventory of completed homes remaining unchanged. Going forward, we expect housing to remain a positive factor for the economy. First, employment gains continue, which should put upward pressure on wage growth, which is already accelerating. Second, credit standards in the mortgage market are starting to thaw. Third, the homeownership rate remains depressed as a larger share of the population is renting, leaving plenty of potential buyers as economic 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 new home sales higher. Look for overall gains in home sales in the year ahead as these factors combine to drive expansion, and any headwind created by an increase in mortgage rates is offset by expectations of faster future economic growth. In other housing news this morning, the FHFA Index, which measures prices for homes financed with conforming mortgages, rose 0.8% in February and is up 6.5% from a year ago. In the year ending in February 2016, FHFA prices were up 5.8%. The national Case-Shiller index, which measures home prices, increased 0.4% in February and is up 5.8% from a year ago. Price gains in the past 12 months have been led by Seattle and Portland, with the slowest gains in New York City and Washington. On the manufacturing front, the Richmond Fed index, which measures mid-Atlantic factory sentiment, ticked down to +20 in April from +22 in March, signaling further expansion in the factory sector, but at a slightly slower pace. Solid data all around, which is helping push US equities higher.
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