U.S. new home sales rise above expectations in February, housing activity to begin rebounding

U.S. new home sales came in stronger than anticipated in February. New home sales rose 4.9 percent sequentially to 667k. Moreover, the data for January were upwardly revised to 636k and now indicates towards a stronger starting point for new home sales in 2019. Sales were up in three of the four major regions and were flat in the West – in line with a widely based pickup. Overall, the three-month average rebounded considerably to 630k in February, and implies strong upward momentum in sales activity. The solid sales data for January and February led months’ supply lower to 6.1, compared with 7 at the end of 2018.

“Based on today’s report, we view housing activity as starting to rebound from the subdued trend throughout 2018. We believe the soft patch in housing last year was driven by worsening affordability”, said Barclays in a research report.

There were two main factors behind this. Home price inflation surpassed household income growth for much of the rebound, making it increasingly difficult for households to purchase a home. Moreover, rising mortgage interest rates after the stable tightening interest rates have eased slightly and home price inflation has decelerated – both are expected to help with stabilization and an eventual improvement in housing activity.

“In addition, as labor markets improve further with rising employment and aggregate household income, we believe this will provide a further tailwind to housing activity”, added Barclays.

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