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David Goodloe
David Goodloe
Articles (769) 

New Home Sales Highest in a Decade

Monthly increase is sharpest since 1992

October 25, 2017 | About:

In the wake of Hurricanes Harvey and Irma, economists were not optimistic about new home sales in September. A Reuters survey indicated economists expected new home sales to drop from 561,000 in August (an eight-month low) to 555,000 in September.

Instead, new home sales skyrocketed to a 10-year high. The Commerce Department reported Wednesday that new home sales jumped 18.9% (the sharpest monthly increase since 1992) in September to a seasonally adjusted annual rate of 667,000.

“The government said it couldn't estimate what impact, if any, last month's hurricanes had on the data,” wrote Christopher Rugaber for The Associated Press. “But the measure of new home sales is based on contract signings, so the number was likely lifted by those looking to replace homes destroyed or damaged by Hurricanes Harvey and Irma.”

Alexander Kuptsikevich, analyst for London-based FxPro, said, “New home sales in the U.S. are often seen as a good indicator of consumer confidence. In this case, the data published today has indicated a very strong improvement in the economy since summer.”

Brian Rhonemus of Sanford Rose Associates-Rhonemus Group said, “The housing report supports our clients’ optimistic view on the need to add more resources to close home construction loans. In the past mortgage companies and mortgage banks have been reluctant to retain – pay up front – for searches to support their home lending operations. That is not the case in today’s mortgage environment. We have several new clients financially committed to our search process. In Columbus, Ohio, we just completed a search with a $2.3 billion bank for an assistant construction team leader. This same client committed to three new positions in Michigan and Ohio to help build bench strength in this same team. Our mortgage practice leader, Irvin White, has his hands full with new mortgage sales and mortgage operations work to support the demand. This demand will drive home values up for existing inventory and could create changes to corporate relocation programs.”

The increase in new home sales was seen from coast to coast. In the South, the region most directly impacted by the storms, the increase was 26%. It was more pronounced in the Northeast, where new home sales were up 33%. The increases were more modest in the Midwest (11%) and West (3%).

“So far this year,” observed Brian Davis, director of education for SparkRental.com, “new home sales are up 8.6%, which provides some much-needed inventory to a supply-starved housing market.”

“The current surge in sales showed recovery after weakening in the previous two months by 6% in July and by 3.6% in August,” Kuptsikevich said. “At the same time, the important point is the return of the housing market to the path of recovery after the fall in 2007 to 2010.”

John Engle, president of Illinois-based Almington Capital, focused on housing starts, which declined 4.7%.

“Starts were down slightly more than was broadly expected,” he said, “but the result is not terribly surprising. The hurricanes didn't help, and underlying construction labor issues continue to be a problem. Prices are already rising as supply is constrained. In the absence of significant improvements to the construction industry's labor pool and efficiency standards, we can expect continued pressure from insufficient supply.”

Likewise, Kuptsikevich’s attention wasn’t entirely on new home sales. He indicated an interest in their influence on currency and interest rates.

“This very strong data couldn't deploy the dollar to growth,” he said, “as it currently remains influenced by the situation with bonds. Nonetheless, today’s data shows improving momentum for the U.S. economy by the year-end and could reinforce expectations for December's rate hike.”

Among homebuilding and construction stocks, Cavco Industries Inc. (NASDAQ:CVCO) sold for $153.35 per share at market close Wednesday, a drop of 1.16%. Lennar Corp. (NYSE:LEN) sold for $57.94 per share, a more modest drop of 0.12%. LGI Homes Inc. (NASDAQ:LGIH) sold for $56.95 per share, a decline of 1.06%. Persimmon PLC (PSMMY) sold for $77.07 per share, an increase of 0.78%.

Disclosure: I do not own any stocks mentioned in this article.

About the author:

David Goodloe
I'm a journalist by training. I grew up in Arkansas and earned my B.A. at the University of Arkansas. I earned my master's degree at the University of North Texas. My background includes stints at newspapers in Arkansas and Texas and teaching news writing and news editing to students at the University of Oklahoma and Richland College here in Dallas. I'm a writer/editor at GuruFocus.

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