New home sales for March came in at a lower-than-anticipated change of -1.5% where an increase of 1.6% was expected. The level of sales were revised upward for January and February, though the monthly changes were revised downward. The annual rate of change accelerated to 5.4% from -4.8% in February. The level of sales slipped to 511,000 from 519,000 in February.
Regionally, the pattern of new home sales was as follows: up 18.5% in the Midwest, up 5.0% in the South, unchanged in the Northeast, and down by 23.6% in the West. The number of months’ supply of new homes rose to 5.8 months.
The rate of change in new homes sales through the first quarter has been particularly soft, which seems strange given the warmer weather, the strength in the employment situation, the low level of interest rates, and the improvement in consumer’s incomes. The reality is that demand for housing seems to be holding up quite well: the National Association of Homebuilders report that supply still seems to be the bigger constraint on home building (lack of available lots upon which to build) as opposed to demand, which they believe is reasonably solid. This also seems to be evident in the mortgage applications purchase index, which continues to shoot upward. While we still do not expect the housing sector to return to the pace of sales experienced pre-crisis, we do believe that it can continue its slow steady ascent. As far as the Fed is concerned, this will simply be another data point keeping it in the ‘wait and see’ camp at its FOMC meeting on Wednesday.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.