New home sales in February totaled 592k, 28k more than expected and up from 558k in January. This is the 2nd best print in the recovery but remains challenged vs the 25 yr average of 715k and the bubble peak of 1.389mm in 2005 (see chart). The number of homes for sale rose by 4k but because of the greater rise in sales, months’ supply fell to 5.4 from 5.6. This is about in line with the long term average and is in stark contrast to the dearth of inventory with existing homes for sale. The median home price did fall 4.9% y/o/y to the lowest level since July (mostly due to mix) but that compares with the average price which rose to an all time record high of $390,400, up 11.7% y/o/y. Fortunately there was a pick up in the number of homes sold priced below $300k because that is where the inventory issues mostly lie because homebuilders don’t have the same kind of margin on lower priced homes in a tight cost of environment of rising labor, lots and permitting. It is this price level of home that will best compete against renting for the first time household.
Bottom line, since the election the monthly pace of sales has averaged 563k and this is with an average 30 yr mortgage rate of 4.30%. This compares with the 10 month average leading into the election last year of 560k and 3.80% respectively. Purchase applications as seen in yesterday’s MBA data are up 5% y/o/y. Thus, the 50 bps increase in mortgage rates hasn’t had much of an impact yet on the housing data. Affordability though still remains an issue for the younger cohort that is dealing with excessive student debt and modest wage growth and is why renting is still very popular. That said, Millennials in particular do want to own a home but are doing so later in life compared with the rest of us.
ITB and XHB both jumped after the better than expected print but are back to where they were at 9:59 and 59 seconds.