February Home Sales and Consumer Prices

Breakout Month for New Home Sales Despite Bad Weather

  • New Home Sales for February increased by 7.8 percent to an annual rate of 539,000 units.
  • February Existing Home Sales gained2 percent, to a 4,880,000 unit annual rate.
  • The Consumer Price Index for February increased by 0.2 percent as energy prices climbed.

On the heels of the March FOMC meeting, we see some data today that will help clear the path for the Federal Reserve, as they position themselves to begin increasing the fed funds rate this year. Data point number one is a breakout number for new home sales. As we are fond of saying, one month does not make a trend, but February new home sales increased by a stronger-than-expected 7.8 percent, to a 539,000 unit annual rate. This is the best monthly sales number since February 2008, and a clear upside breakout from the recent flat trend. We report seasonally adjusted numbers, but it is noteworthy that February’s non-seasonally adjusted sales rate also increased significantly, even with very bad weather in much of the country, and is about even with the non-seasonally adjusted rate from May 2014. Months’ supply of new homes for sale dipped to a tight 4.7 months’ worth, a positive signal for builders. The median sales price of a new home in February was up by 2.6 percent over the last year. The mix of new homes for sale may suppress median prices if more smaller or less expensive homes are being built. Existing home sales also increased in February, up by 1.2 percent to a 4,880,000 annual rate. Unlike new homes sales, existing home sales are not as depressed compared to historical norms. The months’ supply of existing homes for sale is also tight, at 4.6 months. The median selling price of an existing home is up 7.5 percent from February 2014. The combination of strong job growth, increasing home sales and tight supply is a strong positive signal for builders, affirming our expectations for increased residential construction activity this year.

Data point number two is the Consumer Price Index, which, for February, increased by 0.2 percent. With firmer gasoline prices, overall consumer inflation increased, reducing a potential conflict for the Federal Reserve.  Weak inflation, disinflation or outright deflation all make it politically more challenging for the Federal Reserve to increase interest rates despite the ample evidence of significant tightening in labor markets. The February CPI report bolsters the Fed’s view on the transient nature of low energy prices. Relatively stable crude oil prices combined with labor issues at U.S. refiners boosted gasoline prices in February. The overall CPI energy index was up by 1.0 percent for the month, after falling by 9.7 percent in January. Consumer food prices gained 0.2 percent in February. The core CPI (all items less food and energy) also increased by 0.2 percent for the month. Over the previous 12 months headline CPI is unchanged due to the drop in gasoline prices last year, but core CPI is up by 1.7 percent.

Market Reaction: U.S. equity markets are gaining. The 10-year Treasury Bond yield is up to 1.91 percent. NYMEX crude oil is up to $47.53/barrel. Natural gas futures are up to $2.82/mmbtu.


For a PDF version of this Comerica Economic Alert click here: New_Home Sales 03-24-15.

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