This was well above consensus expectations, and this was the highest sales rate since 2007. Clearly low mortgages rates, and low sales in March and April (due to the pandemic) have led to a bounce back in sales in May, June and July. Favorable demographics (something I wrote about many times over the last decade) and a surging stock market have probably helped new home sales too.
Note that sales are reported on a seasonally adjusted annual rate basis (SAAR). Sales in July NSA were up 3 thousand from June, but this translates into an increase from 791,000 SAAR in June to 901,000 SAAR in July.
This graph shows new home sales for 2019 and 2020 by month (Seasonally Adjusted Annual Rate).
New home sales were up 36.3% year-over-year (YoY) in July. Year-to-date (YTD) sales are up 8.2%.
And on inventory: since new home sales are reported when the contract is signed – even if the home hasn’t been started – new home sales are not limited by inventory. Inventory for new home sales is important in that it means there will be more housing starts if inventory is low – and fewer starts if inventory is too high (not now).
Important: No one should get too excited. Many years ago, I wrote several articles about how new home sales and housing starts (especially single family starts) were some of the best leading indicators for the economy. However, I’ve noted that there are times when this isn’t true. NOW is one of those times.
Currently the course of the economy will be determined by the course of the virus, and New Home Sales tell us nothing about the future of the pandemic. Without the pandemic, I’d be very positive about this report.