New home sales for October came in slightly worse than anticipated, with a change of -1.9% where a decrease of 0.5% was expected. This follows a 1.2% rise in September. The annual rate of change decelerated to 17.8% from 25.6% in September. The level of sales slipped to 563,000 from 574,000 in September.
Regionally, the pattern of new home sales was as follows: down 13.7% in the Midwest, 9.1% in the Northeast, and 3.0% in the South, but up by 8.8% in the West. The number of months’ supply of new homes rose to 5.2 months.
This month’s decline in sales suggests that home sales continue to be hindered by a number of hurdles, in a housing recovery that nevertheless continues to move upwards at a moderate pace. This continues to be driven by steady jobs growth, wages starting to show some upward momentum, consumer confidence still solid after hitting a nine-year high in September, and mortgages rates still low. However, much of the recent weakness seems to be related to more supply-side issues than demand, i.e., inventory levels have been quite low, and homebuilders continue to complain about a shortage of land upon which to build. This has also been exacerbated by increased regulation, which is slowing up the building permit process. The months’ supply of unsold inventory is now 5.2, not as low as it was, but still on the low side. Overall, this month’s decrease in sales was a little disappointing; however, we continue to believe that residential housing should be a key driver of this current “modest to moderate” economic recovery moving forward.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.