Implications: Due to the government shutdown in October, data for new home sales was delayed. So today we received both September and October numbers. New home sales took a nosedive in September but then boomed in October rising 25.4%, the biggest monthly gain in over 30 years. So, in the face of higher mortgage rates and an increase in inventories of existing homes, which should be drawing some buyers away from buying new homes, the market for new homes continues to improve. It has by no means been a straight line higher, but, as shown in the chart to the right, the 12-month moving average for new home sales is at its highest level since March 2009. The inventory of new homes is up 25.5% from a year ago. However, we don't see these gains as anything to worry about. The months' supply of new homes – how long it would take to sell all the new homes in inventory – declined to 4.9 in October, below the average of 5.7 over the past twenty years. As a result, as the pace of sales continues to recover, home builders can keep increasing inventories. Another way to think about it is that the construction of new homes can outpace a rising pace of sales over the next few years. On the pricing front, the median sales price of a new home was down 0.6% from a year ago. We do not believe that prices will remain negative year over year, but will slow somewhat from the double digits increases we have been seeing over this past year.
Click here for a PDF version
|