New home sales for August came in slightly better than anticipated at a 7.6% decline, versus an expected decrease of 8.3%. This is the biggest decrease since September 2015 (-9.5%). The annual rate of change decelerated to 20.6% from 32.3% in July. The level of sales fell to 609,000 from 659,000 in July.
Regionally, the pattern of new home sales was as follows: down 34.3% in the Northeast, 12.3% in the South, and 2.4% in the Midwest, but rose by 8.0% in the West. The number of months’ supply of new homes rose to 4.6 months.
This month’s decline comes against a tough comparison in the previous month, though August seems to have been a particularly bad month for the housing sector as a whole: housing starts fell by 5.8% in the same month, while existing home sales fell 0.9% in August. However, if we look into September’s data, things start to look a little better; for example, the MBA’s mortgage applications purchase index showed a bit of a dip in August, though has since recovered in September. Meanwhile, for the housing market as a whole the fundamentals continue to remain fairly solid on the back of the further strength in the labour market, improving incomes, strong consumer confidence, and low interest rates. One constraint against a more rapid pace of home sales is the lack of available supply, where inventories of homes for sale are particularly low (especially, existing homes). Overall, we continue to believe that residential housing should be a key driver of economic activity moving forward.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.