A Comment on New Home Sales

The Census Bureau released their preliminary data for New Homes Sales today. February 2014 estimates came in at a seasonally-adjusted annual rate of 400k, compared with a revised 455k in January; a decline of 3.3% month-over-month and -1.1% year-over-year change. “Weather” may have affected these figures some, but a larger factor is likely rising home prices and interest rates. The first chart below is a 20 year view of year-over-year percent changes of total dollars spent on new homes.

NewHomeSales-20Years

The five highest growth rates over the last 20 years came between August 2012 and October 2013 and, in general, this period experienced strong growth overall. This is to be expected given Americans’ proclivity toward home ownership. Below is a closer view of the most recent two year period. February 2014 barely saw an increase (+0.46%) in total dollars spent when compared with February 2013.

NewHomeSales-2Years

This data is at an inflection point here and I’ll stop just short of calling it a no-win situation. That is, if house prices and interest rates continue to rise, or even stay the same on balance, demand is likely to stall. If house prices fall, demand may pick up, but then there is the issue of falling house prices.

I’ve discussed several indicators recently suggesting that the economy is plateauing. Financial markets are also experiencing a bit of churn with volatility picking up as momentum stocks fall out of favor.

This entry was posted in Portfolio Strategy. Bookmark the permalink.