June New and Existing Home Sales, July FOMC Preview

Existing Sales Dip, But New Home Sales Surge

  • New Home Sales for June increased by 8.3 percent to a 497,000 unit annual rate.
  • The Months’ Supply of New Homes on the market fell to a very tight 3.9 months’ worth in June.
  • Existing Home Sales for June dipped by 1.2 percent to a 5.08 million unit annual rate.
  • The Months’ Supply of Existing Homes ticked up to a moderately tight 5.2 months’ worth in June.

Recent housing-related data has been mixed as June residential construction eased and June existing home sales dipped. However, today’s report on June new home sales breaks that trend. New home sales for June surged by 8.3 percent to hit a 497,000 unit annual rate. This is up 38.1 percent from June 2012, and is the highest rate of new home sales since May 2008. The months’ supply of new homes on the market trimmed to 3.9 months’ worth, indicating very tight supply in many areas. This also suggests that residential construction will continue to climb. Both housing starts and permits eased in the second quarter in what looks like a minor correction. The median sales price of a new home in June was $249,700, which was 7.4 percent above the year earlier level.

Existing home sales ticked down in June by 1.2 percent to a 5.08 million unit annual rate. The June rate was still the second best sales rate since existing homes sales began climbing out of the basement in early 2011. The months’ supply of existing homes on the market increased to 5.2 months’ worth. There is some concern that gains in existing home sales have been fueled by institutional buyers representing an “artificial” level of support for housing markets. A recent article in Forbes (from June 13) stated that institutional investors accounted for about 12 percent of home purchases in March, up from 9 percent a year earlier. It is our view that this is not a bad thing. Anything that tightens up existing home markets and firms up prices will incentivize private buyers to come into the market as well.

The Federal Reserve’s policy setting body, the Federal Open Market Committee, will have a two-day meeting over July 30 and 31. We do not expect to see a significant change in monetary policy as a result of this meeting. From the upcoming end of July meeting, it is reasonable to expect some stronger foreshadowing that the Fed will begin to change course at the following meeting in mid-September. In his recent testimony to Congress, over July 17 and 18, FOMC Chairman Bernanke said nothing to counter growing market expectations that the Fed will begin to dial down QE3 at their September 17th and 18th meeting. The green light for QE3 calibration is data dependent. Rising new home sales looks like it will be part of that green light. If job growth for July and August weakens that could delay QE3 calibration.

Market Reaction: U.S. equity markets are down. Treasury yields are up. NYMEX crude oil is down to $106.09/barrel. The dollar is up against the euro and the yen.

Economic Alert 07242013

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