Uptick in new home sales not a recovery in housing market

INDICATOR: April New Home Sales

KEY DATA: Sales: up 6.4%; Median Prices (Year-over-Year) down 1.3%

IN A NUTSHELL: "Despite the improvement in the new home market, it cannot be said the housing market is recovering a whole lot from the winter wipeout."

WHAT IT MEANS: Yesterday I commented that we have to discount the mediocre April existing home sales report since those purchases were made during the winter. In contrast, the April new home numbers reflect contracts, and as such are more representative of current activity. At least compared to March, builders did better. But while the increase was stronger than expected, the level of sales is still disappointing. Also, the rise was mostly due to a huge, nearly 50% surge in purchases in the Midwest. On the other side was a 27% decline in the Northeast. In the middle were the South, which posted a modest rise and the West, where demand was flat. So, there really was not rhyme or reason to the numbers and I have no explanation. On the cost front, prices are down from last April, whether you use mean or median numbers. We are beginning to see more sales in the $200,000 to $400,000 level, which seems to be pointing to the core of the buyers coming back into market.

MARKETS AND FED POLICY IMPLICATIONS: So, what do we make of these numbers? Up more than expected is always good but what really matters is levels and the number of new homes being purchases is still really low. To reach a strong level, the sales pace needs to probably double, which I think says it all. But I am ever the optimist so I will still argue that we need to see what happens over the next couple of months before we jump to any conclusions about the direction of housing. Investors may like this number, but they may also be running out for the long weekend, which is precisely what I am about to do. So, with that, I will say: Have a safe and enjoyable Memorial Day weekend!