New Home Sales Highest in Ten Years: Economy on a Roll?

New home sales rose 6.2% in October to 685,000 units. The percentage gain since August was the most in nearly 3 decades.

New home sales put in huge back-to-back percentage gains, the most in nearly three decades, and steamrolling expectations according to Mortgage News Daily.

New Home Sales by Region

For whatever reason there was a 30.2% suge in the Northeast and a 17.9% surge in the Midwest according to the Census Bureau report on New Residential Construction.

Bond Market Reaction

I like to watch the bond market reaction following economic reports.

Curiously, 10-year and 5-year yields are down 1 basis point, the rest are flat. I view this as no overall reaction.

If the expectation was a jump in inflation or a strengthening of the economy, yield at the long end should have jumped.

Rate Hikes

A reader asked "why would the Fed stop hiking?" That's easy.

1) Recession

2) Sustained stock market decline

I expect both.

For further interest rate discussion, please see What Will the Yield Curve Look Like if the Fed Hikes in Dec and March?

Mike "Mish" Shedlock

Probably people moving from Houston, Florida and Puerto Rico to hurricane safe areas after their homes were destroyed.

KidHorn, Houstonians, Floridians and PR's moving to the Northeast region in November? I don't think so.

I would like to know how many of those buyers have passports from the PRC. In my north Texas suburb, roughly half the sales are to Chinese national buyers. Cash.

A reader asked "why would the Fed stop hiking?" That's easy.

1) Recession

Yeah, eventually maybe, right? lol

i'm surprised but the longer term graph is very useful as it shows we're still way below the levels from the mid-90's to around 2006. Hard to see how we get much higher unless home prices come down significantly or incomes rise substantially. Otherwise I can't see it

@Sechel: Consider this scenario: You buy a house for $150k with $30k down. 5 years later, I buy it from you for $200k. You now have $30k + $50k = $80k in your pocket. Good investment right? Well now that $80k can get you into a $400k house! Your income may go up 15% over that 5 years, but the house the bank thinks you can afford has gone up 100%. My point is that banks lending money on increased house prices is putting new money into the economy. And that new money is going into the pockets of people who just sold their houses and need new ones. So to some degree, housing prices can continue going up well past the wage income of the population as a whole.

Why you are wrong:

(1) We have been in a net income recession for years. Everyone in the real world knows the economy is not strong, yet the Fed has raised rates. Besides, rates are not the problem with the economy - it's trust and confidence, based on rampant fraud and corruption, plus unequal enforcement of the rule of law.

(2) How will there be a sustained stock market decline? Are all the trouble spots that are seeing their fear capital head into dollar-based assets, which has included RE, suddenly going to be resolved? I'm sure Draghi and Kuroda would love to hear your miraculous plan for recovery. However, don't tell the Joint Chiefs your plan. We can't have piece breaking out all of a sudden.

If you haven't noticed, the world is upside down. Traditional metrics are worthless, as you will see when stocks, gold, rates, and Bitcoin rise together next year.

That would be "peace".

Millenials finally moving out of the basement, this could be big.

Maybe the 30 year yield is low because demand from the likes of Europe is high? Really, given the choice between comparable yields on EU Junk bonds, and US 30's,,,,what's a European investor to do?

On new home sales, numbers aside, do we see a trend on that chart?

Some thoughts on the numbers.

  1. Home sale figures should not be a surprise, home builder confidence values are up and have been trending up for over a year.
  2. The number of new builds being signed and under construction are all rising. This should mean new home closings will continue to rise for the next several months.
  3. As builders have squeezed about all they can get out of the high end buyers, expect builders to refocus on starter homes for Millennials. Yes, Millennials are starting to buy homes.

a weak dollar + foreign investors = rise in home sales

How long have you been expecting a recession now Mish? Since 2010?

With the passage of time, things change and evolve. This transformation can be seen in both society and the economy. A question we must ask is just how relevant today's comparisons are with prior economic cycles? The situation today is in many ways "historically unique" due to the rampant expansion of credit in recent decades.

http://Economic Evolution Renders Many Comparisons Obsolete.html