Today’s new home sales report was so strong that many people had to double-check the numbers — and I get it. The estimated value is 623,000 But the sales are 739,000. This isn’t the first time I’ve presented new home sales numbers, and I’m sure those numbers will be revised downwards, but a beat is a beat.
We can also check other sources for clues about this report in advance. Here are three things to consider ahead of the new home sales report for any directional shifts.
1. Look at the survey direction of home purchase applications in the new housing market
Not many people know that builders have their own new home purchase application surveys Mortgage Bankers Association Share once a month. The index had fallen significantly recently, but in the latest report a few days ago, the index clearly rebounded higher, which means demand turned positive.
2. Homebuilder confidence survey has a future-focused section
this NAHB/Wells Fargo A section of the monthly survey released by Home Market Index Builders shows homebuilders’ views on the demand for single-family homes six months from now. The index is showing some real weakness as mortgage rates rise. But over the past two months, things have improved slightly. The index is skewed toward smaller builders, so you know the larger builders are feeling more positive than the smaller builders.
3. When interest rates fall, homebuilders outperform new home sales
When mortgage rates fall below 7%, builders’ sales numbers outperform the existing home sales market because in this environment, it’s cheaper for builders to push interest rates even lower. When rates go above 7% it does get more expensive, but below 7% we’ve seen demand pick up recently.
Let’s take a look at the details of the latest report.
from census: new home sales New single-family home sales increased at a seasonally adjusted annual rate of 739,000 units in July 2024, according to estimates jointly released today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 10.6% (±16.5%)* higher than the revised figure of 668,000 in June and 5.6% (±21.3%)* higher than the July 2023 estimate of 700,000.
That’s a huge estimate. As shown below, this sales report is vertical, meaning it will likely be revised downwards but still end up beating expectations. All of the above factors contributed to this beat, and we also have to consider that sales have been down recently, so our bar for beating estimates is lower.
For-sale inventory and monthly supply: The number of new homes for sale at the end of July is estimated at 462,000 on a seasonally adjusted basis. At the current sales pace, that would mean a 7.5-month supply.
This is also a significant decrease in monthly supply and 100% will be revised upwards, but will still be a positive decrease. This is key because if builders are going to build a lot of homes over the next few years, we need them to sell more homes.
There was little change in the number of completed units available for sale, which is roughly average for builders. Builders don’t have lots of vacant homes for people to pick from – they sell homes as commodities, so they manage supply well. That’s why housing starts and permits are back to recession levels today.
All in all, this is an excellent report. I know this report will be revised lower, but this is exactly what we need, showing the value of lower mortgage rates. If we want to build a lot of homes, we need demand for them, and lower mortgage rates will be the key variable in getting single-family permits to stop declining and grow again.
