New Home Sales Contracted Mildly But Remain at High Level

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s second update discusses new home sales.

• New homes sales contracted mildly this month on tight supplies, while consumer confidence fell sharply in the wake of the government’s sequestering of spending.
• Annualized new home sales eased 4.6% in February from January following a downwardly revised 13.1% jump in January.
• Relative to last year, year-to-date new home sales were 19.0% stronger.
• Despite rising construction of new homes in recent months, inventories remain tight.  The decline in sales pushed the months supply up to 4.4 from 4.2 in January, but this level still implies upward price pressures.
• Consumer confidence fell sharply in March tumbling from 68 to 59.7.   Current conditions eased, but the bulk of the decline was driven by a decline in expectations.  Expectations about the availability of jobs and business conditions soured leading the index lower.
• Spending by consumers accounts for nearly 70% of the economy.  If consumers’ confidence weakens, this could translate into a slowdown of the real economy.  A decline in spending might put downward pressure on stocks and the 10-year Treasury yield, which would lower mortgage rates, but insecurity about employment could soften home sales.  This report bolsters the Fed’s cautious stance on continued Treasury and MBS purchases to stimulate employment and housing.
• New sales remain at a high level.  This will continue to stimulate new construction which is good for the economy and employment.  However, only so many new homes can be sold as long as inventories remain tight and construction lags to keep up with demand.