June U.S. new home sales hit four-month high

The positive trend continues for U.S. new home sales. New homes sales rose 11 percent to seasonally adjusted, annual rate of 384,000 in June, the U.S. Commerce Department announced Monday -- providing additional evidence that the nation's worst housing slump in a generation is ending.

Further, the May new home sales statistic was revised up 2.4 percent to a 346,000 rate. Economists surveyed by Bloomberg News had expected June new home sales to register a 350,000 annualized rate. However, sales are still down 21.3 percent in the past year.

This marks the fourth straight month that new homes sales have risen, and even though it includes a summer month -- an historically active season that boosts sales -- the streak provides further evidence that the housing sector is attempting to form a bottom.

Median price drops again

Also, the median price for a new home decreased 5.8 percent to $206,200 in June from $219,000 in May. In June 2008 the median price totaled $234,300.

Meanwhile, inventories declined 4.1 percent in June to 281,000 and have now fallen more than 35 percent since early 2009 to total an 8.8-month supply at the current sales pace. Still, economists are careful to point out that the inventory decline originated in a housing market bloated with foreclosed homes, builders' speculative excesses, and a large supply of homes by typical Americans unable to sell at what they consider acceptable prices, due to a lack of buyers. A healthy, normal new homes sales market typically has a three to five month supply of homes on the market.

In June, sales rose in three regions: Northeast, up 29.2 percent; Midwest, up 43.1 percent; and the West, up 22.6 percent. They fell 5.3 percent in the South.

Investors should follow the new homes sales statistic because, historically, increases in home sales are strongly correlated with increased demand and an economic expansion. That's because housing activity does not operate in vacuum. When new homes are sold, homeowners tend to also buy big ticket items: furniture, appliances, home supplies -- an uptrend in each of which is good news for the economy and bullish for the U.S. stock market.

However, government statisticians also caution that the new homes sales statistic contains a margin of error and is subject to revisions. Further, economists note that it typically takes three to five months to detect a trend, so investors should not read too much into data from one month.

Housing Analysis: The four-month trend suggests that seekers of new homes are starting to bite at the better values the decline in home prices has created. That said, new home sales are still at a low level, and at this level will not move the U.S. GDP needle that much. How would one characterize the new home sales market? It has a pulse and is breathing, but it's still in the intensive care unit.
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