The Commerce Department’s New Home Sales Report for August was a huge upside surprise.
New Home Sales
- Sales of new single‐family houses in August 2022 were at a seasonally adjusted annual rate of 685,000.
- This is 28.8 percent (±18.3 percent) above the revised July rate of 532,000, but is 0.1 percent (±16.5 percent) below the August 2021 estimate of 686,000.
Sales Price
The median sales price of new houses sold in August 2022 was $436,800. The average sales price was $521,800.
For Sale Inventory and Months’ Supply
The seasonally‐adjusted estimate of new houses for sale at the end of August was 461,000. This represents a supply of 8.1 months at the current sales rate.
Supply is more than a bit misleading. It includes homes for sale that have not even been started.
New Homes For Sale By Stage of Construction
Of the purported 461,000 homes for sale, only 49,000 are complete.
106,000 thousand homes for sales are not even started. 306,000 are in some stage of construction other than complete.
Astonishing Report
The commerce department revised July lower, but the number was a shocking blowout.
The Econoday consensus range was 400,000 to 522,000. I highly doubt this number will survive revisions.
That said, the chart of sales is still in a major downtrend. Before looking at the numbers I noted bond yields. The 30-year bond yield is up 13 basis points as I type, to 3.83%.
The 10-year yield is up 9 basis point to 3.98 percent, closing in 4.00 percent.
These numbers will not help anyone looking for a Fed pivot.
This post originated at MishTalk.Com
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Mish
Reducing inflation to a level consistent with the Fed’s 2 percent objective will require a period of restrictive financial conditions. These will generate below-trend growth and some softening of labor market conditions and restore better balance between supply and demand conditions in the U.S. My FOMC colleagues and I are acutely aware that this slowdown will, unfortunately, cause difficulties for some households and businesses. Yet, failing to restore price stability would result in far greater costs.
So, with this in mind, what comes next for monetary policy? Last week, the FOMC voted to raise the federal funds rate target by 75 basis points to a range of 3 to 3-1/4 percent and indicated that further rate increases will likely be in order. Also, as previously announced, in September we stepped up the pace at which we are reducing the size of our balance sheet.
How much more tightening might be necessary? One way to gauge this comes from the Committee’s quarterly Summary of Economic Projections (SEP) released last week, which presents FOMC participants’ forecasts of key economic variables over the next three to four years and for the longer run. The median SEP projection is for the federal funds rate to be in the range of 4-1/4 to 4-1/2 percent by the end of this year, though I would note almost as many FOMC participants wrote down 4 to 4-1/4 percent for their end-of-year numbers. So most think we’re looking at something like another 100 to 125 basis points of rate increases this calendar year. The median projection then has rates rising a bit further, to 4.6 percent at the end of next year, and then declining to 2.9 percent over the subsequent two years. My own viewpoint is roughly in line with the median assessment.