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By the Numbers

Featuring brief segments of economic analysis from our senior economist Michael Bazdarich, PhD.

The economic analysis we previously featured in By the Numbers is now available on the Western Asset Blog. This page will no longer be updated.

New-Home Sales Surge in July

New-home sales rose a whopping 12.4% in July. What made the July gains even more impressive is that they came on top of similarly strong increases in the spring months. In other words, the July gains were not an offset of preceding declines, but a move to new highs for this expansion.

Ironically, other homebuilding measures have been less encouraging lately. As seen in the accompanying chart, single-family housing starts and home permits have been flat to down for the last eight months, even as new-home sales have moved to new highs.

This pattern is the exact opposite of what we saw in late-2015 and early-2016, when starts and permits were rising, but new-home sales were flat. In fact, by our reckoning, the sales gains of the last four months were necessary just to allow builders to sustain current levels of home construction.

The chart staggers the scales for starts/permits (left scale) and for new-home sales (right scale) to reflect the incidence of owner-builds (which show up in starts and permits but not in home sales). By this reckoning, only in the last two months have new-home sales levels been sufficient to sustain current levels of homebuilding, let alone higher ones. Indeed, inventories of unsold new homes were rising up until June, a confirmation of the depiction in the chart.

Only with the July sales gains have new-home inventories shown any decline. And, yes, it is commonly asserted that home inventory levels are very low right now by historical standards, but the problem with this assertion is that home sales and starts are even lower by historical standards, so that inventories are still quite high relative to the level of new-home sales.

So, do the recent home sales gains reflect aggressive selling by homebuilders to head off an inventory glut, or do they instead reflect newly aggressive demand for homes that will rocket housing starts higher in the months to come? Our money is on the former reading, but we concede that today’s gains make the latter a reasonable takeaway.

Sales and Starts of New, Single-Family Homes
Source: Census Bureau. As of 31 Jul 16

Michael Bazdarich

Product Specialist/Economist

Mike brings more than 45 years of experience to his position. "By the Numbers" will address economic data releases that are pertinent to a broad range of investors.

Prior to joining the Firm in 2005, Mike ran his own consulting firm, MB Economics. He earned his PhD in Economics at the University of Chicago.

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