New home sales spiked 18 percent in August to a 504,000-unit pace with upward revisions to previous months’ data. Much of the increase was concentrated in the Northeast and West. Inventories also rose.
New Home Sales Reach Highest Level Since 2008
New home sales posted a stronger-than-expected reading in August, jumping 18 percent. The increase was largely due to
sizeable gains in the Northeast and West, which increased 29.2 percent and 50 percent, respectively. Upward revisions to data in the three previous months were a welcome surprise and should alleviate some of the worry around the slower housing recovery. Inventories are up 16 percent over the past year.
New Home Sales Activity Should Continue to Improve
With sales showing strong gains in the highly-priced Northeast and West, average home prices increased during the month.
Median home prices, however, followed the trend in other price measures, falling 1.6 percent in August. Today’s report corroborates the solid gains in builder sentiment over the past three months. Our outlook remains unchanged for the housing market, and we continue to expect a gradual improvement.
Existing home sales fell 1.8 percent in August, with a modest downward revision to the previous month’s data.
Despite the decline, underlying data suggest a continued normalization in the housing market.
Downside Surprise in Existing Sales
- Existing home sales slipped into negative territory in August, following four months of gains. Although the decline was much weaker than expected, the underlying data suggest the housing recovery is still making positive strides. Distressed sales comprised only 8 percent of the total sales compared to 12 percent one year ago. All-cash transactions fell 6 percentage points to 23 percent as investors are less active in the market.
First-Time Home Buyers Still Missing in Action
- The share of first-time homebuyers remained unchanged at 29 percent in August, but is a tad higher than its year-ago reading.
With household formations below its long-run trend and many young adults still choosing to rent, we will likely not see any meaningful increase in activity until next year. On a regional basis, sales in the South and West fell during the month. Median and average home prices moderated for the second month.
Housing starts plummeted 14.4 percent in August, following an upward revision to the previous month’s data.
The volatile multifamily component fell a whopping 31.7 percent, while single-family was down 2.4 percent.
Starts Drop in August
Housing starts came in much weaker than expected, posting the sharpest monthly drop since April 2013. Although single-family and multifamily starts fell in August, the weakness was largely due to the volatile multifamily component. August’s drop follows an upwardly revised 22.9 percent increase in July.
Overall, starts fell in every region, but single-family starts rose in the Northeast and South during the month.
Permits Weak, but Overall Momentum Unchanged
Permits fell 5.6 percent in August, also with broad-based weakness. Despite the decline, the level of multifamily permits are running ahead of starts, which suggests we could see improvement in this component in the coming months. However, the recent moderation in apartment demand suggests we could be reaching a peak. Year-to-date single-family permits in August are still about the same level as last year.