KEY DATA: Sales: -11.4%; Prices (Year-over-Year): -1.7%/ Claims: up 1,000
IN A NUTSHELL: “I guess few people could visit the construction sites earlier in the year, which may explain why new home sales tanked in March.”
WHAT IT MEANS: Sometimes, the data have odd patterns. New home sales rose solidly in January and February, though how anyone in certain parts of the country could get to where the homes were being built is anyone’s guess. But those increases were unwound in March as demand cratered to its lowest level since November of last year. Sales largely disappeared in the Northeast, fell sharply in the South and were down moderately in the West. Only the Midwest reported a gain. About the only explanation I have for this surprisingly large drop was that the snow and ice in January and February prevented visits to the developments, so fewer people were prepared to sign contracts in March. Since builder confidence soared in late March and early April, I am guessing all those missing buyers have started showing back up. What is also strange is the decline in prices. Prices had been rising in the 5% to 8% range for a couple of years and there seems little explanation for the sudden decline other than the data are volatile. We have seen this type of up and down before, so don’t be surprised if we get a large rise in prices when the April numbers are released.
The labor market remains quite firm as new claims for unemployment insurance were essentially flat last week. The level remains below 300,000 and that points to a pretty solid April jobs report.
MARKETS AND FED POLICY IMPLICATIONS: Yesterday we learned that existing home sales surged in March but today we found out that new home demand tanked. What should we make of this contradictory pattern? First, these are two distinctly different samples, especially in the way they are counted. Existing home sales are closings while new home sales are signed contracts. Thus, an existing home sale in March may have come from a deal made in December or January. That would argue for a slowdown in sales in the next few months as the winter probably limited house visits. On the other hand, the inability to get to the construction sites should have slowed demand in January and February for new construction, yet it didn’t. In other words, I am somewhat confused, a not uncommon but very uncomfortable state for me. All that said, new home sales in the first quarter were at the highest pace in seven years. We are still way below a normal market, but the healing process continues, despite the relatively weak March numbers. Also, the number of homes on the market is rising and that should help sales. So taken together, this is a disappointing report but not one that points to any sudden weakness in the housing market. That should be the takeaway for investors, though with earnings coming out, who knows if these data will matter? But a less than stellar March should temper the Fed’s view of the housing market and the members were concerned about it the last statement.