August New Home Sales Missed Expectations

Although a bit delayed, we decided to provide a summary on and our thoughts about today's slightly disappointing new home sales data. 

• August new home sales annual rate of 373K was below the Street's 380K estimate.  July sales were revised up 2K to 374K.
• Y/Y sales were up in all regions with the West and Northeast leading the way with 64.6% and 56.5% increases, respectively.
• On a monthly basis sales were down 0.3% from July.  This slight decline was driven mainly by nearly a 5% dip in new home sales within the Southern region.  Northeast led the way with 20% sequential increase. 
• Months' supply was unchanged at 4.5, and remained at the lowest level for the year.
• Based on non-seasonally adjusted data, median and average new home prices jumped in August when compared with July.  
• However, the data also showed an increase in months' supply to the highest level since Feb. of this year.
• The percent distribution of new homes sold based on price categories explained not only the increase in prices but also in inventory.  Sales of homes within the second highest price category ($500,000 - $749,999) jumped to represent 8% of total homes sold in August.  This figure is not only double that of what we saw in July, but also higher than last year's 5%.  In addition, it is above the 6% overall average for 2010. 
• On the other side, sales within the second lowest price category ($150,000 - $199,999) represented only 16% of total sales in August, significantly below July's 25%, and 2010 and 2011 averages of 24% and 22%.

In our opinion, the widening gap demonstrated here between sales of more expensive and of cheaper homes, could result in further increase in overall prices but also possibly in increase in supply or inventory, which may create pressure on prices and limit this housing bottoming out and/or recovery.  While quantitative easing may have brought mortgage rates lower, the beneficiaries are mostly the wealthy potential home buyers and/or institutional investors that initially had enough capital to make big purchases even if rates were 200bps higher.  We remain doubtful about the trickle-down effect that the Fed and everyone else is hoping for, especially given the not very impressive growth in jobs and average wages or income.  Tomorrow's release of last week's initial jobless claims, along with Friday's release of personal income & spending in August, may provide a clearer picture.