New home sales to take breather after reaching 8-year high

Demand for housing (both new and existing) increased being supported by improved employment and income. The demand for new home reached to an eight-year high in May. However, Societe Generale expects new home sales to decline modestly to 535k units, the bank's forecast for a modest correction is driven by the reported decline in housing starts in June given the close correlation between the two series. 

According to Societe Generale, "The fundamental outlook for new home sales is very bullish. Although young households are showing a clear preference towards renting rather than buying, tightness in rental inventories and the resulting rent inflation should encourage young households to turn to home ownership."

This is already evident in the resale activity where the ratio of first-time home buyers has been rising steadily. But the inventory situation in the resale market has been fully normalized and this segment of the housing market is not capable of meeting demand. Therefore, the bank argues new home sales to outperform going forward and to ultimately drive further gains in construction activity.