Why falling prices for new home sales can increase summer sales

Market Realist

Overview: This week's economic releases—relook at the consumer (Part 6 of 11)

(Continued from Part 5)

U.S. Census Bureau’s New Home Sales report for May

The U.S. Census Bureau will release the New Home Sales report for the month of May on Tuesday, June 24. New home sales are one of the most important housing market indicators, making up about 7% of the total residential housing market. In contrast to existing home sales, which are recorded only on closings, new home sales are recorded when contracts are signed.

Home sales are also key indicators of consumer confidence. Consumers are inclined to make large purchases (like homes), only when they are confident about their jobs and the prospects for the overall economy. Consequently, the report on new home sales is often a “market-mover” impacting both stock (VOO) and bond (BND) markets. Home sales also impact the sales of home improvement retailers like Home Depot (HD) and Lowe’s (LOW). Both retailers are part of the iShares U.S. Home Construction ETF (ITB).


Key takeaways from April’s report

New home sales in April, at 433,000 units, were higher than markets had anticipated. This represented a 6.4% month-on-month (or MoM) increase over March. However, similar to existing home sales, new home sales were down year-over-year (or YoY), declining by 4.2% below the numbers recorded in April, 2013.

New home sales were helped by lower home prices along with a surge in sales following the depressed, weather-affected sales environment in 1Q14. Median new home prices were reported at $275,800 in April—a decrease of 2.1% and 1.3%, MoM and YoY, respectively.

Outlook

The benign outlook for interest rates is likely to be a key factor spurring home sales in the coming months. However, home supply remains a concern—low inventory levels for new homes may decrease sales numbers in May. Low supply of new homes may lead to price increases which would hinder sales, all else equal.

In the next section, we’ll discuss the S&P/Case-Shiller Home Price Index, which will also be released on Tuesday.

Continue to Part 7

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