New Single-Family Home Sales Increased 6.2% in October
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Implications:  New home sales surprised to the upside in October, coming in well above consensus expectations and beating the forecast from every economics group for the second straight month.  At a 685,000 annual rate, sales of new homes were up 18.7% from a year ago and the highest since 2007.  There is some evidence that part of the recent strength may be due to a rebound from Hurricanes Harvey and Irma.  Notably, all of the increase in October was due to contracts on homes where construction has yet to start, which jumped the most for any month since 2005.  However, this is not all just an artificial rebound from the hurricanes.  The increase in sales in October was broad-based across all the major regions, with the smallest gain from the South.  Moreover, if we average new home sales in August, September, and October – which means we're including the negative hurricane effects in August – the average pace is also the highest since 2007.  New home sales can be volatile from month to month, but prospects remain good for further growth over the next few years.  Sales of new homes were typically about 15% of all home sales prior to the end of the housing bubble in the previous decade.  They fell to about 7.5% of sales at the bottom of the housing bust and now have recovered to about 11%.  And if there's plenty of room for growth in new home sales, that means plenty of room for home building to grow as well.  The month's supply of new homes – how long it would take sell all homes in the inventory is down to 4.9 months, the lowest level in more than a year.  Going forward, there are a few key reasons we are maintaining a positive outlook on housing.  First, job gains continue, which should put continued upward pressure on wage growth.  Second, credit standards in the mortgage market are thawing.  Third, the homeownership rate has started to revive after a long period of growth in renting, which leaves plenty of potential buyers as economic conditions continue to improve.  The US economy is looking up and housing is one of the sectors leading the way.

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Posted on Monday, November 27, 2017 @ 11:26 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.