The new home sales report had such a big beat today that many people had to double-check the numbers — and I get it. The estimates were for 623,000 but the sales came in at 739,000. This isn’t my first rodeo with new home sales data and I believe these numbers will be revised lower, but a beat is a beat.
There are other sources we can check to get clues on this report ahead of time. Here are three things to consider to get a sense for any directional shift before the new home sales report comes out.
1. Look at the direction of the new home market purchase application survey
Not many people know that the builders have their own new home purchase application survey that the Mortgage Bankers Association shares once a month. That index fell noticeably recently, but in the last report a few days ago, the index had a noticeable bounce higher, meaning that demand flipped toward the positive.
2. The Homebuilder Confidence Survey has a future-looking component
The NAHB/Wells Fargo Housing Market Index builder’s survey that comes out every month has a component that shows what the homebuilders think about demand six months out for single-family homes. This index showed some real weakness as mortgage rates moved up. But in the last two months, it has gone slightly positive. This Index is tilted toward smaller builders, so you know the bigger builders are feeling even more positive than their smaller counterparts.
3. Homebuilders have outperformed new home sales when rates fall
When mortgage rates fall below 7%, the builder’s sales data has done better than the existing home sales market because it’s cheaper in that environment for the builders to push rates even lower. It does get more expensive when rates are over 7% but below 7%, we have seen demand pick up recently.
Let’s take a look at the details of the latest report.
From Census: New Home Sales Sales of new single-family houses in July 2024 were at a seasonally adjusted annual rate of 739,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 10.6 percent (±16.5 percent)* above the revised June rate of 668,000 and is 5.6 percent (±21.3 percent)* above the July 2023 estimate of 700,000.
This is a massive beat of an estimate. As you can see in the chart below, this sales report went vertical, which means it will probably be revised lower but will still end up beating estimates. All of the factors above contributed to this beat and we must also consider that sales had fallen recently, so we had a lower bar to beat estimates.
For Sale Inventory and Months’ Supply: The seasonally-adjusted estimate of new houses for sale at the end of July was 462,000. This represents a supply of 7.5 months at the current sales rate.
This is also a massive move lower in monthly supply, which 100% will be revised higher, but still will be a positive move lower. This is key because we need the builders to be selling more homes if they’re going to be building a lot of homes over the next few years.
The number of completed units ready for sale didn’t budge much and this data is roughly around an average level for the builders. The builders don’t provide a lot of unoccupied homes for people to pick from — they sell homes as a commodity, so they manage their supply well. This is why housing starts and permits are back at recessionary levels today.
All in all, this is an excellent report. I know this report will be revised lower, but it is precisely what we needed, showing the value of lower mortgage rates. If we want to build a lot of homes, we will need to have the demand for them,and lower mortgage rates will be the crucial variable in getting single-family permits to stop falling and grow again.