New Home Sales

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New home sales plunged sharply in September to their slowest pace in 10 months and home builder optimism is sure to be influenced, as higher prices and slower overall economic growth weigh on the housing market.

The Commerce Department said last week that new-home sales slumped 11.5 percent in September to a seasonally adjusted annual rate of 468,000, the lowest level since November of 2014 and September’s drop ended a two-month streak of accelerating sales. 

Americans’ zeal for newly built homes took off this year, yet now appears close to having topped out. Solid hiring over the past three years has improved many family balance sheets, while rising home prices has returned equity to current homeowners now seeking to upgrade to new residential developments. Sales of new homes have soared 17.6 percent during the first nine months of 2015.

However, global weakness seen in places like China, and continued economic troubles in the European Union have already had a downward pull on economic U.S. growth in recent months. Even our neighbors to the north, are beginning to feel the pinch with an economy, heavy investment in oil. Those pressures could be spread to the housing market if the drop in sales of new homes leads to a decline in construction.

A stronger pace of sales will need to be seen for single-family housing starts. Most real estate bloggers last month reported a nice bump in new home starts, but neglected to mention that when you extract multi-family homes, we actually saw a 5 percent decline in single family home starts in September.

Job gains slowed in September, as well. While profit margins for many of the largest U.S. Businesses with a global footprint stopped growing. The stronger dollar has punished exports abroad and cheaper oil prices have forced energy firms to cut workers and slash orders for pipeline and equipment. In economic terms a strong dollar is equal to an interest rate hike, and while most of us weren’t watching the U.S. dollar has been the 800 lb gorilla few have paid much attention to.  The U.S. dollar is still in a confirmed bull market since the summer of 2014, so further gains are certainly possible. The factors that drove last year’s dollar rally are still present: tightening U.S. monetary policy combined with very loose monetary policies in Europe and Japan, which are both struggling with deflationary forces. The European Central Bank recently indicated that it is likely to increase the size and/or duration of its euro-weakening the QE program, while the Bank of Japan may be forced to follow suit in the coming months. Another leg of the U.S. dollar bull market would spell even more pain for commodities, emerging markets and what’s important to us, JOBS! 

The slowdown has yet to hit sales of existing homes as drastically, but the September pullback in newly built properties was severe. Purchases of new homes dropped in the Midwest, South and West, but plummeted a stiff 61.8 percent in the Northeast!

Prices have climbed sharply as well, making new construction less affordable for would-be buyers. The median new-home sales price has jumped 13.5 percent from a year ago to $296,900.

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