Economist's Insights

New Home Sales – A Luxury Builder’s Market

Nov 27, 2017

New home sales rose 6.2% in October, surprising expectations that they would fall over 6% for the month after a 18.9% increase in September.  However, September’s increase was revised down to 14.2% MoM taking some steam from the October strength; however, sales were still 9% better than expected.  On an absolute basis, new sales rose 40k for the month including a 13k increase in the Northeast (+30.2%%), a 12k increase in the Midwest (+17.9%), a 10k increase in the West (+6.4%), and a 5k increase in the South (+1.3%).  The new home market continues to be a builder’s friend with buyers chasing a limited supply of inventory, pushing prices up as they do.  While the median price fell from $324,900 to $312,800, the average price rose $19,100 to $400,200.  The divergence between the median and the average illustrates the strength in pricing for upper-end homes, at least in part a result of record-high stock prices and the resultant boost in net worth and homebuyer confidence.  Plenty of questions are raised by the recent trends including questions of affordability, and durability of the housing gains if stock prices were to reverse.  From a GDP perspective, after just one month of data, new sales in 4Q are 16% above the average monthly pace in 3Q.