New single-family home sales increased 6.6% in September
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Implications:  Today's report on new home sales beat the consensus, but remained at sluggish levels. The homebuyer tax credit, which required buyers to sign a contract by the end of April, moved future sales forward.  As a result, new home sales, which are counted at contract, increased to a 370,000 annual pace in April.  Since then, sales have averaged only a 294,000 annual pace.  Given a growing population, new home sales should increase over the next several years to roughly 950,000.  We believe the gains in sales over the past two months are the start of that trend.  Meanwhile, the total number of homes for sale continues to decline, making room for a rise in home construction in future quarters. 

In other recent housing news, the Case-Shiller index, a measure of home prices in the 20 largest metro areas around the country, declined 0.3% in August (seasonally-adjusted).  The index is still up 1.7% versus a year ago.  The FHFA index, a measure of prices for homes financed with conforming mortgages, increased 0.4% in August, but is down 2.4% in the past year.  Home price measures should soon be feeling downward pressure from the lapse of the homebuyer tax credit.  Once this "hangover" period is cleared, we expect a renewal of an upward trend in home prices.

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Posted on Wednesday, October 27, 2010 @ 11:09 AM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.