U.S. markets closed

New Home Sales +16.6%, PMI Reports Up Again

Mark Vickery

This morning, New Home Sales for May outperformed in a big way, up 16.6% to 676K from a downwardly revised 580K the previous month. It also easily surpassed expectations for 650K. So what had already been anticipated as a bounce-back from low levels this spring, Housing is bringing about a quicker recovery than analysts had presumed.

Record low mortgage rates on near-zero interest has proven too irresistible for prospective home buyers. And the notable lack of supply in Existing Homes for sale has propped up companies like Lennar LEN and Toll Brothers TOL over the near term. Sales of homes not yet built are up 20% year over year; even with demand for existing homes apparent, sales have slipped 9.7% on lack of inventory.

We may be seeing another fast-growing industry as we emerge from our pandemic crisis slumber: homebuilders will likely be adding workforce and obtaining land and building supplies going forward. New homes being built are excellent sources for economic growth — not only for mortgage brokers and their banks, but for wood and glass manufacturers, plumbers, landscaping services, etc. For this reason, a sooner-than-expected boost to the Housing industry may provide tailwinds to the U.S. economy as a whole.

If there is a caveat to this scenario, it may have to do with government forbearance programs, many of which are expected to run out at the end of next month. Mortgage payment forgiveness may run out, even as high unemployment overall remains. Should this then lead to foreclosures in the housing market, this could put some weakness into home pricing in the medium term.

PMI Manufacturing and Services also surprised to the upside earlier Tuesday, up for the second straight month to 49.6 and 46.7, respectively. While still south of a headline figure of 50 or higher, signifying growth, we’re still off the record lows for April of 36.1 and 26.7, respectively. Pent-up demand is clearly filling in some of the deepest economic holes; as we get back to “normal” levels of productivity, we’ll see if we can maintain these healthy rates of change.

Market indexes are currently smiling through their Alfred E. Neuman “What, Me Worry?” phase (ask your parents). Excepting rare moments of valuation anxiety, the past two and a half months have been a boon for equities. The Nasdaq now has 8 straight days closing in the green (+0.74% Tuesday), and the S&P 500 (+0.43%) is up 3 of the last 4. For its part, the Dow closed up another half a percentage point.

Free Book: Finding #1 Stocks

In this 300-page hardcover, Zacks' Executive VP Kevin Matras reveals almost every stock-picking secret he’s learned from the system that since 1988 has more than doubled the average yearly gain of the S&P 500.

Learn more now >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Toll Brothers Inc. (TOL) : Free Stock Analysis Report
 
Lennar Corporation (LEN) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report