- INDICATOR: March New Home Sales
- KEY DATA: Sales: -1.5%; Prices (Year-over-Year): -1.8%
- IN A NUTSHELL: “New home sales are not booming, another reason that growth was slow during the first part of the year.”
WHAT IT MEANS: The housing market is a critical part of the economy and what happens to sales and housing starts is a window into growth. Well, the window has fogged up. In March, housing starts and permits fell, existing home sales rose and now we see that new home sales were off. OK, what is going on? The new home sales report was not nearly as weak as the headline indicates. Demand in the West has been up and down like an out of control roller coaster during the past few months. In four of the last five months, there have been changes in sales that exceeded 20%. In March, the decline was nearly 24%, which was actually less than the nearly 25% drop posted in January. Those were largely offset by similar increases in November and February. In other words, any one-month’s number for this part of the country must be viewed with amusement.
Meanwhile, there was a sharp rise in sales in the Midwest, a decent increase in the South but the East was flat. Another oddity is that home prices are supposedly falling. While the supply of new homes is rising, the inventory is still relatively low. Low inventory has caused prices to jump in the existing home market but it is not doing the same in the new home segment, which really doesn’t make much sense. What may be happening is that builders are scaling back the cost of the homes by cutting back on size and amenities. That allows them to sell lower cost homes. The percentage of houses sold that were in the $300,000 to $400,000 range fell sharply in March, which may support my thinking.
MARKETS AND FED POLICY IMPLICATIONS: The Fed’s two-day meeting starts tomorrow and while no rate hike is likely, it is not clear what the statement will hint at. Will it open the door for a June increase or create a high burden of proof that the economy and inflation are rebounding from the recent slumber? I expect it to be more dovish than hawkish, which means it will not rule out a June increase but make one unlikely. What I will be looking for are the dissents: How many will there be? The number would indicate the depth of disagreement on the FOMC. As for the markets, oil and earnings matter a lot more than a small decline in new home sales, so I don’t expect this report to make any difference, especially given the uncertainty about the FOMC statement.
Joel L. Naroff
is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.
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