What Drives the Next Leg Up?


The U.S. housing market has been one of the strongest performers this year in an otherwise Muddle Through U.S. economy.  It has been helped along by steady U.S. job gains, low U.S. mortgage rates, and a limited supply of available U.S. homes for sale.

Jumping into this mix, the U.S. Commerce Department reported new homes sales for August. 

What Did August’s New Home Sales Report Show Us?

It said sales of new U.S. homes rose +7.9% to a seasonally adjusted annual rate of 421,000 in August.  This amounted to a rebound after a large drop in July.  Three of four regions posted gains. Sales showed the fastest pace since January.  Gains met expectations.  Chiming in before the report, economists predicted August sales of 420,000, up from 394,000 in July. 

Other Factors in Play:

The look forward is helped and hindered by the following factors:

 (1) Mortgage rates have risen a full percentage point since May. But since early September, we have seen the 30-year fixed mortgage benchmark --the U.S. 10-year Treasury rate-- backtrack from 3.0% to 2.65%.  That is an August level.  

Tack 150 basis points on to acquire 30-year fixed mortgage rates.  Some economists think September’s higher mortgage rates will steal momentum from the recovery.  They cite the earlier July drop in new-home sales as building evidence.  That made this morning’s August report all the more important. 

Truthfully, don’t expect to see a change in behavior driven by high September mortgage rates until October new home sales data is published.

(2) Yesterday, we saw fresh Case-Shiller U.S. House Price Index data.  It showed single-family home prices rising +12% over last year.  Remember, this fresh Case-Shiller data is two months old. It takes them two months to comb data.

More home equity means less homes underwater, and stronger construction incentives.

(3) Americans are still buying existing single-family homes. The National Association of Realtors reported last week that sales of previously occupied homes in August rose to a seasonally adjusted 5.5 million annual pace.  That's a healthy level.  It’s the highest in more than six years. 

A strong secondary market should be a positive for new home sales.

RTI QUESTION:  Going forward, what SINGLE factor is MOST IMPORTANT to a new leg in new home sales?

(a)  Mortgage Rates
(b)  House Price Momentum
(c)  More Jobs
(d)  Strong Existing Home Sales
(e)  Other

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