Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.
Today's Focus: June New Home Sales
- He Giveth and He Taketh Away
Last month we found ourselves a bit confounded by the strength of the May New Home Sales report as it posted a +75k sequential increase seemingly out of nowhere. Now we know to continue to trust our gut, which said at the time, "what the ...".
Today's June New Home Sales report shows a complete reversal, more than wiping out the originally reported moonshot increase for May.
* Total: New Home Sales saw its largest sequential decline in a year as sales dropped -36K sequentially, declining -8.1% MoM and -12% YoY. This was on top of a downward revision to May to 442k from 504k (-12%). The softness in sales rhymes with the ongoing weakness in housing starts, which continue to offer little supply side support for forward transaction volumes.
* Regional: All regions saw a sequential decline in sales with each, with the exception of the Midwest, returning to negative YoY growth.
* Inventory: The total inventory of new homes increased +4.2% MoM to 197K. Supply continues to trend higher on both a 1Y and 2Y basis as well.
* Sales vs Sentiment: We highlighted the apparent decoupling of builder confidence from the reality of new construction activity last week alongside the soft starts data for May. Today’s sales data for June offers further confirmation that the burgeoning builder hopium spread is likely to compress in favor of the data in the coming month(s).
Price gains are decelerating and what had been the last stronghold of housing - the new home market - is now falling apart. We remain bearish on housing until we see the next inflection in the second derivative price trends.
About New Home Sales:
Each month the Census Department releases the New Home Sales report, which measures the number of newly constructed homes that have been sold in the month. The difference between the New Home Sales report and the Starts and Permits report is that New Home Sales only includes single family spec homes built and sold by builders, and does not include condos, apartments, or owner-built units. This is why New Home Sales typically run at roughly half the rate of Starts.
Joshua Steiner, CFA
Christian B. Drake