Implications: Don't get too bent out of shape about the weak headline number for new home sales in December, housing continues to be a bright spot for the US economy. Yes, the 0.4% decline in sales in today's report was disappointing. But December sales were also up 23% versus a year ago, demonstrating the strong recovery we saw in 2019 following all-around weakness in 2018. Looking at both years as a whole shows sales in 2019 hit an annualized pace of 682,000 units, a post-recession high, and an increase of 10.8% versus the 2018 pace. Chalk that up as another key sign the US is not headed for recession. It also looks like builders have begun to respond to the stronger sales pace we have seen over the past year. New home sales normally run around 70% of single-family housing starts but had exceeded that threshold for each of the past ten months. However, with housing starts surging over the past several months, that number fell to 65.7% in December. All this new construction is also beginning to show up in the inventory of new homes available for sale, which had been on a sustained downward trend since January but has begun to rebound. Affordability played a big role in the 2019 rebound in sales, with mortgage rates having fallen roughly 100 basis points since peaking in November 2018. With any potential rate hikes from the Fed on hold for the foreseeable future, and the tight labor market boosting incomes, the outlook for future sales remains positive. Look for a continuing upward trend in both sales and new construction in the year ahead.
Click here for PDF version