January New Homes Report by Joel Naroff, Chief Economist

Joel L. Naroff
President and Chief Economist

INDICATOR: January New Home Sales
KEY DATA: Sales: up 9.6%; Prices (Year-over-Year): +3.4%

IN A NUTSHELL:   “You know all those stories about the weather hurting the housing market, forget them – maybe.”

WHAT IT MEANS:  Okay, I am totally confused.  The builders are saying that the housing market has tanked.  The National Association of Home Builders’ Index crashed and burned in February, declining by ten points – the largest change, up or down, in the nineteen year history of the index.  Mortgage applications are faltering dropping to their lowest level in nearly two decades, according to the Mortgage Bankers Association.  So, with that as a background what do we discover?  New Homes soared in January to their highest level since July 2008.  Confused?  Me too!  There was a sharp drop in demand in the Midwest (subzero temperatures tend to do that) but that was more than offset by an amazing 74% rise in the Northeast.  I live in the Northeast.  I didn’t go out in January.  I have no idea how to explain that.  Actually, I do.  What I didn’t understand was the total collapse in new home sales in the Northeast in December, so maybe the rise, which simply put the region’s sales pace back to where it had been, should have been expected.  So, if weather hurt the Midwest and odd data led to the sharp increase in the Northeast, how do you explain the double-digit gains in the South and West?  Maybe, the housing market is really in good shape and when the better weather returns, so will sales in the cold-weather sectors of the nation.  As for prices, they were up modestly over the year but inventories remain limited so I expect we could start seeing some improvement in prices going forward.

MARKETS AND FED POLICY IMPLICATIONS:  This is one of those “you tell me and we both know” reports.  It was great to see that new home sales soared in January and I hope that continues, but given all the other numbers, this one seems awfully strange.  Still, it was good news and it does seem to be supported by the consumer confidence numbers, which are not that bad.  Also, that there was a large sales rise in the warmer weather states seems to point to some underlying strength in housing that may be hidden by temporary factors. I’m trying to be optimistic.  I am looking out my window at a major snow burst and getting depressed.  But, there is light at the end of the tunnel.  I am headed down to Clearwater for my annual father/son Phillies spring training trip next week so I can ‘think July’ even if it is still February.  Anyway, it is hard not to like this report, which is how investors, Fed members and anyone who is hoping for a better economy will likely view it.

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