Corrects annual price change to 9.7%
The numbers: New-home sales ran at a seasonally adjusted annual rate of 692,000, the Commerce Department said Tuesday. That was 4.5% above February’s tally and beat the MarketWatch consensus forecast of a 656,000 rate.
What happened: Sales of newly-constructed homes finally gained momentum after months in the doldrums. March’s selling pace was the strongest since November 2017, the month before the recent tax law changes took effect.
It was also 3% higher than in March 2018. Because the government’s data on new residential construction and sales is based on small sample sizes, it is often heavily revised, and economists prefer to look at several months’ worth of data to discern trends. For the year to date, sales are running just a hair – 1.7% – stronger than the same period last year. In March, the Commerce Department revised down several prior months’ sales estimates.
One thing that helped boost sales: lower prices. The median price of a home sold in March was $302,700, 9.7% lower than the same period a year ago. At the current pace of sales, it would take 6 months to exhaust available supply, precisely the amount of time that’s long been considered the marker of a market evenly balanced between supply and demand.
Big picture: For some context on how severe the current spell of under-building has been, take a look at new-home sales in 2000 or 2001 . During those two years, well before the housing bubble started to inflate, Americans purchased 877,000 and 900,000 newly-constructed homes. In 2018, we purchased just 622,000.
What they’re saying: Rob Dietz, chief economist for the National Association of Home Builders, acknowledges that comparing the current housing economy to the one from two decades ago has some downsides. For one, the population isn’t growing nearly as fast now as back then. Still, the gulf between then and now is stark – and 2018’s anemic pace of construction follows several years of similar underbuilding.
“We think that based on demographic demand, we should probably be building 1.1 million single family homes this year,” Dietz told MarketWatch. “Our forecast is for less than 880,000 starts.” The NAHB prefers to look at starts, or groundbreakings, rather than sales data, to gauge market activity; in March, single-family starts ran at a pace of 785,000 .
“Take a look at U.S. new home sales!” said Jen Lee, senior economist for BMO Capital Markets, in a note out after the release. “Sure, the last 3 months were revised lower, but we’ll ignore that given that sales are now sitting at the highest levels since November 2017. However, supply is still an issue, though not as much as in the existing homes market. Inventories fell for the 2nd straight month, lowering the months’ supply to 6.0... though that is still considered ‘normal’.”
Market reaction: PulteGroup Inc. /zigman2/quotes/201694804/composite PHM +4.60% reported stronger quarterly earnings than many Wall Street analysts had expected on Tuesday before the Commerce Department report was released, helping to further boost a sector that’s enjoyed outsize gains so far this year.
The broader S&P 500 /zigman2/quotes/210599714/realtime SPX +2.92% was stronger Tuesday morning.