KEY DATA: Sales: +2.0%; Prices (Year-over-Year): +2.6%
IN A NUTSHELL: “The housing market is improving, though in fits and starts and not uniformly across the nation.”
WHAT IT MEANS: New home sales rose in February but the details of the data, once again, were as strange as they come. The entire increase came from a nearly 40% rise in demand in the West. Meanwhile all the other three regions posted declines. Looking at each area, the one pattern is that the numbers are bouncing around like crazy. While one might conclude from the huge rise in sales in the West that the housing market is on fire in that part of the country, that would be totally wrong. The increase came after a one-third drop in January. The February sales pace, while solid, was still below the December rate. Meanwhile, the nearly 24% drop in the Northeast came after a nearly 20% decline in January. Sales have been up and down, sometimes wildly in the South and Midwest as well, so let’s not jump to any conclusions from a single month’s number. Prices are rising, but modestly. The increases have tailed off as supply has improved. That stands in contrast to the lack of inventory in the existing home market.
MARKETS AND FED POLICY IMPLICATIONS: Existing home sales were off in February, but at a level that was not that bad. Meanwhile, new home sales rose, though the level is well below what anyone thinks is decent, let alone strong. Part of the problem facing the housing market is the demographic shift. Boomers are looking to shed their McMansions but Millenials are tending toward renting. Also, households are just starting to build enough equity to actually sell their homes and many homeowners have refinanced into low rate mortgages that has made it financially manageable to own their current homes. Consequently, the prospects for a surge in home sales are not very bright. That doesn’t mean sales will not rise. With mortgage rates low and household finances getting better, it is expected that home sales will rise solidly this year. It is just that we shouldn’t expect any major boom, except in scattered markets. Investors would most likely not have reacted very much to this report, but with the terror attack in Brussels and the ebbs and flows in oil, who knows what will drive the markets in the short term? As for the Fed, four regional bank presidents have voiced their opinion that rates should be going up and their comments contrast with the largely dovish FOMC statement issued last week. There is a lot of smoke coming out of the Fed and that makes one wonder about the extent of the fire.