 | New home sales rise 7.3% in April |
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Implications: New home sales rose 7.3% in April, beating consensus expectations for the second straight month. And for the first time since August 2007, sales increased in all four major regions of the country, showing that the gain in sales was widespread and not confined to one area. On top of that, the level of new homes in inventory fell to the lowest level on record, since at least 1963. While this is all very good news, it does not necessarily signal the start of a consistent upward trend. Sales remain in the range we have seen since last May, and the new home market still faces two major challenges. With such a large number of existing homes on the market, many of which are like new or are in foreclosure and steeply discounted, the new home market isn't as attractive to buyers. Credit conditions also remain very tight, despite low mortgage rates, particularly for buyers who don't have very good credit scores and a 20% down-payment. So while housing is clearly beginning to recover, these issues will keep the pace of recovery subdued for the time being. We expect new home sales to eventually increase substantially, but it will take several years to fully recover. In other news this morning, the Richmond Fed index, a measure of manufacturing activity in the mid-Atlantic, dropped to -6 in May from +10 in April. While this number was a disappointment, it is not consistent with other manufacturing indicators that show continued growth in manufacturing.
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