May New Home Sales, June Regional MF Surveys, April House Prices

Housing Takes Baton from Manufacturing in Economic Relay

  • New Home Sales for May increased by 7.6 percent, to a 369,000 unit sales rate.
  • The Case-Shiller 20-City Composite House Price Index increased by 0.7 percent in June.
  • The Dallas Fed’s Manufacturing Outlook Survey surged in June.
  • The Richmond Fed’s Survey of Manufacturing Conditions for June showed cooler activity in that region.
  • The Conference Board’s Consumer Confidence Index for June eased to 62.0.

Even as global macroeconomic indicators cool down and U.S. manufacturing has eased from its strong post-recession surge, U.S. housing markets continue to show signs of improvement. New home sales for May increased by 7.6 percent to hit an annual rate of 369,000 units. This is still a depression-level rate, but the improving trend that began in late 2011 remains intact.  On a year-over-year basis new home sales were up 19.8 percent in May.  Sales have been strongest in the Northeast, up 128 percent over the last year. Prices are firming up, too, and that will lead to more sales as buyers lose their fear of ongoing depreciation. The Case-Shiller 20-City composite house price index for April was up 0.7 percent for the month. It is still down on a year-over-year basis, by 1.9 percent, but that grim statistic may finally change by the end of this year.  In April 17 out of 20 cities showed increasing prices, with gains strongest in Phoenix, San Francisco, Tampa and Washington D.C.. Only Boston, Detroit and New York showed price declines in April. The percentage of foreclosure sales has dropped through the spring and that is helping both new and existing home prices. As Gerald Ford once said, “our long national nightmare is over.” Low interest rates, rising prices and record high affordability are bringing buyers into the market. It is essential that job growth remains positive this year and consumer confidence does not falter in order to keep the housing momentum engaged. Falling gasoline prices will help.

Manufacturing conditions in Texas, Southern New Mexico and northern Louisiana improved in June according to the Dallas Fed’s regional manufacturing outlook survey. Still-strong energy production and exploration activity is helping. However, very soft natural gas prices and softer oil prices are a downside risk for the region. The Richmond Fed’s manufacturing activity index for June showed cooler conditions from Maryland through South Carolina. Overall, manufacturing indicators are generally positive but have eased back from the robust readings of 2010 through the first half of 2011. The Conference Board’s index of consumer confidence fell in June to 62.0. A firmer stock market in July and falling gasoline prices should be enough to put a floor under the index as long as job growth is at least weak-to-moderately positive.

Market Reaction: Equity prices are giving back opening gains. Treasury yields are up at the long end of the yield curve. Oil is down to $79.03/barrel. The dollar is down against the yen and up versus the euro.

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