New Home Sales Surge Likely Result of Price Plunge 
US Stocks, yields, and the Dollar all rallied on news that the U.S. new home sales were up big (+16.2%) “hinting at unexpectedly robust activity in the housing market” according to Reuters news service.
The data was touted on CNBC, Reuters, and Bloomberg, among others, as further evidence of both a firm U.S. economy and of a bottomed out U.S. Housing market. The bond market confirmed that view by selling U.S. bonds. That raises yields and implies that traders believe the data will encourage Federal Reserve members to forego contemplation of any near-term rate cuts.
What was less advertised was the RECORD drop in housing prices. In April, the median sales price of a new home fell $28,500 to $229,100 from $257,000 in March, down 11%.
No wonder new home sales were up – there’s a fire sale going on. Again, according to Reuters, “[the record price drop] showed home builders taking extraordinary steps to move houses”.
This rise in new home sales is akin to the misleading increases in U.S. auto sales that occur when carmakers are layering incentive upon incentive (Such as cash back and zero percent financing) in order to offload inventory.
Note that homes account for 44% of all wealth in America.(compared to 17% in retirement and 6% in sstocks, bonds, etc.] that would mean an overall loss of American wealth of (11% x 44% = 4.8%) IF that level of price drop rears it's ugly head in the upcoming 'existing home sales' data. Either way, that's quite a tumble for a single month.
Tomorrow, we’ll be presented with ‘Existing Home Sales’ – a number with far more influence on the nation’s overall housing market as there are many more existing homes (i.e. they have had a previous owner) on the market than there are New Home Sales (i.e. homes that have had no previous owner).
Data Indicates Housing Bust is Just Beginning
Yesterday, markets were pleased with some seemingly positive housing data. Unfortunately, markets failed to learn from past mistakes.
First, a short primer:
Housing Starts: The number of residential building construction projects begun during a specific period of time, usually a month
Housing Permits: The number of legal authorizations (permits) given to build privately owned housing units during a specific period of time.
Housing Completions: The number of residential units with construction completed over a period of time.
Understanding the definition and relationship of these three indicators is critical to understanding the true health of America's housing market.
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