New home sales for February came in much better than anticipated, with a change of 6.1% where an increase of 1.6% was expected. This follows an upwardly revised 5.3% rise in January. The annual rate of change accelerated to 12.8% from 6.1% in January. The level of sales rose to 592,000 from 558,000 in January.
Regionally, the pattern of new home sales was as follows: up 30.9 % in the Midwest, 7.5% in the West, and 3.6% in the South, and down 21.4% in the Northeast. The number of months’ supply of new homes fell to 5.4 months.
The pace of the expansion in new home sales has recovered considerable momentum in the last two months following a flattening out over the previous six. Some of this has likely been due to post-election certainty and very low levels of inventory of existing homes. The underlying trend for the housing market is for further moderate increases, though it is also facing a few more hurdles this year, than it has in the past few years, in the form of higher prices and rising interest rates, increasingly rising rates of inflation have also seen real income growth rates diminish, all further impacting affordability. Nevertheless, with a strong employment situation, high levels of confidence, and lending standards that are still falling, all accompanied by decreases in regulations surrounding new home building following the Trump election, suggest that the underlying trend is still upward. Furthermore, while inventory of new homes has been relatively high (5.8 months’ supply in December, the highest since September 2015), the supply of existing homes has been exceptionally low, forcing more homebuyers toward new home purchases rather than existing homes. The bottom line here is that housing should continue to be a solid, but still a relatively modest, positive contributor to aggregate GDP growth this year.
For a copy of this report or to subscribe to the Economics Weekly or Economic Indicators reports, please contact your William Blair representative.
Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.