KEY DATA: Sales: +13.8%; Northeast: +89.7%; Prices (Over-Year): +5.6%
IN A NUTSHELL: “The highest new home sales pace in thirteen years shows that at least one segment of the economy is back up and running.”
WHAT IT MEANS: Housing has been leading the recovery and it continues to do so. New home sales soared again in June. The pace was the strongest since July 2007. It didn’t matter if a house was completed, under construction or not even started, buyers bought. The gains, though, were somewhat unevenly distributed across the nation. There was a near doubling in contract signings in the Northeast, a region that was crushed by the virus and has just really started opening up. Clearly, there is a lot of pent up demand in the states in that region and it is being met. But when a section that usually comprises maybe five percent of total sales accounts for about twenty eight percent of the new demand, you know there was a special situation. Still, sales were up strongly in the other three regions, so this is a real recovery. On the prices side, the cost of a new home continues to rebound back toward where it was before the recovery. With demand rising and inventories falling, builders have every reason to be happy and keep pumping out new homes.
IMPLICATIONS: Next week we get the first reading on spring GDP and it should show the largest quarterly decline on record. With the economy starting to, the June data, which are the starting points for third quarter growth, were well above April’s horrendous shutdown numbers. So we should expect the summer quarter to post possibly the largest rise on record. But the virus resurgence has raised questions about the extent of that increase. The V-shape recovery true believers were looking for a percentage gain equal to about two-thirds to three-quarters the size of the decline. But that is looking like an overly optimistic outlook. Yesterday’s rise in new claims for unemployment insurance is likely to be the first of many increases if the virus remains at its current level, let alone increases in those states that have managed to keep it somewhat in check. The PPP is starting to run out and firms that will now have to make money the old fashioned way (by earning it), will likely start cutting their workforces in order to survive. And it is likely that the next business and household payments plan coming out of Congress will be significantly lower than the last one. That can only mean many people will see their disposable income decline – and their consumption follow suit. Where we go from here is anyone’s guess, but I think the third quarter is setting up to show disappointingly strong growth. Yes, that sounds ridiculous, but if you were expecting growth to be in the twenty-five percent range and it turns out to be closer to ten percent, then it is really not great.
All that said, the Phillies open up tonight. Yes, I know, they are a long-shot, but baseball is back and I am a huge baseball fan, so until they are eliminated, all I have to say is:
LET’S GO PHILLIES!