New home sales, which rose a very solid 7.6 percent in May, may become a rising positive for the economic outlook. Sales came in at a higher-than-expected annual rate of 369,000 in May, well above the Econoday forecast for 350,000 and the best rate in more than 2 years. Though April is unrevised at 343,000, there is a solid 15,000 upward revision to March to 347,000. Regionally, May's strength includes the Northeast but is concentrated in the South which by itself makes up 55 percent of all sales.
The surge of buying in May brought down supply to 4.7 months at the current sales rate which is the lowest since 2005. Price concessions from home builders may be behind some of the sales strength. Both the median and average price readings show low single digit monthly contraction with year-on-year comparisons holding in the positive mid-single range.
The degree that new home sales has fallen is striking, from monthly rates nearly as high as 1.4 million at the peak of the housing stampede back, again, in 2005. But that's history, what matters for the economic outlook and for the markets is the monthly path this year which now appears to be moving higher on top of weather-related strength early in the year. The stock market is showing little initial reaction to today's report which however may help to limit European-related pessimism through the day.
New home sales in April rebounded 3.3 percent, following a 7.3 percent drop in March and a 5.6 percent gain in February. The April annualized pace of 343,000 was still a little below the recent high of 358,000 in February but was up 9.9 percent on a year-ago basis, suggesting upward lift over a longer period. Months' supply in April slipped to 5.1 months from 5.2 the month before. The latest number was down substantially from the recent recession high of 11.6 in October 2008. Homebuilders' efforts to bring supply in line (by sharply reducing new construction) have paid off.