The Weak Link Of The US Housing Market

housing marketAt this point, most people agree that the U.S. housing market is recovering.

However, there continues to be one less-than-stellar metric of the housing market: new home sales.

The explanation for this is pretty intuitive.  The economy is still anemic, and steep discounts are driving buyers to older existing homes.

Meanwhile, the homebuilders are increasingly optimistic and housing starts have been on the rise.  This has some economists worried that a supply glut is building in the market for new homes.

Next Friday, we’ll get the latest reading of new home sales.  Economists expect a healthy jump, which should help with this disconnect in the market.

Here’s TD Securities with some commentary:

The new homes market has been a laggard in the overall housing market recovery, and while new homebuilding and existing home sales activity have risen significantly from their lows, new home sales have yet to enjoy a similar turnaround in fortune. In December, we expect sales activity to improve only modestly, with the pace of sales boasting a respectable 6.1% m/m gain to 400K. The increase in sales will add to the positive momentum in November, when sales rose an equally impressive 4.4% m/m, justifying the surge in optimism among homebuilders (as seen in the NAHB homebuilders’ sentiment report) about sales prospects in recent months. In the coming months, we expect the positive momentum in new home sales activity to be sustained, though it is likely to continue to lag the buoyancy in the existing homes market.

Here’s TD’s chart. Hopefully, the increasing homebuyer traffic will eventually lead to a pick up in sales.

home construction

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