New Home Sales Fall 11.4%, Worse Than Expected

Wednesday, May 24th, 2017

Following yesterday’s Ahead of Wall Street, April New Home Sales figures fell by the largest amount in over two years: 11.4%. Analysts had been looking for a much more modest 1% drop. This figure also represents the second straight drop in new home sales.

Of course, these reads are pretty volatile, and a lot of that volatility has to do with the weather each month, especially in the earlier part of each year. After an exceptionally warm February, we’ve seen seasonal climes fall back into more historically normal patterns, or in some cases worse. Even still, the analytics must have taken at least some of this into account ahead of yesterday’s report, and still the figure was far below consensus.

In terms of regional performance, the West crashed hardest, down 26.3%. This is the worst performance for that region since October 2010, back when the U.S. was still in the throes of the Great Recession. Further, the median sale price of a new home slid to $309K, roughly 3% lower.

We see some evidence of this weakness, by the way, in earnings results this morning from home improvement retailer Lowe's (NYSE:LOW) , which missed estimates on top and bottom lines, as well as same-store sales. The company did retain full-year guidance, but shares are down 3% in today's pre-market.

This is not to say we couldn’t get a swift correction back to the upside sometime soon. After all, with the U.S. labor market continually improving, this alone will create more demand for new housing. As younger people leave their parents’ basement for their first apartments, those in the apartments buy starter homes, and those in the starter homes then look to buy their “dream house,” which is often a brand new construction.

As new homebuilding demand improves, this also triggers growth for lumber and drywall companies, trucks and trains to delivery these products, more business for electricians and more purchasing of household appliances. Then, the lumberjacks and truck drivers and contractors and retail sales reps will all see more money in their bank account, which they’ll spend on more clothing, restaurants and vacations. In short, new homes boost economic output like arguably nothing else in today’s age.

This is why focus on new home sales is so important. And though we do look to be in a mere seasonal adjustment — which, by the way, doesn’t look to be improving here in the Midwest, with the coldest and rainiest May in recent memory — a warning sign for the U.S. economy overall would be a persistent ratcheting down of new home sales as we venture into the summer months. So it’s worth paying attention to.

Mark Vickery
Senior Editor

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