New home sales rose between March and April and were revised up for the month of March. This is a bit of welcome news, given the tepid sales we saw in the existing home sales market yesterday. Gains were driven almost entirely by a snapback in the South, which was hit hard by winter storms right through the month of March. Sales remain down from a year ago, which means we’re still digging ourselves out of the soft patch we saw last fall and this winter; the only region showing substantial gains from a year ago is the Midwest.
The return in sales in the South lowered the median and average prices of new homes sold during the month. The premium for new over existing, however, remains near a record high. Builders are chasing more affluent urban buyers who can either pay cash or qualify for a mortgage. Also, buyers are showing a preference for shorter commutes instead of urban sprawl, with prices at the pump so high.
Bottom Line: Today’s gains in new home sales confirm that the recovery in housing construction will continue to outpace the recovery in home sales. We have overshot on the downside and now have some leeway to catch up. The model for everything from banking to retail, however, is predicated on the churn in overall sales, which has been lackluster. This means that the risk that the housing market delivers less in spillover demand than most hoped for in 2014 is high and rising. We need more than new, expensive homes sold to affluent buyers to kick start a lackluster recovery. The only silver lining is housing appreciation, which is still improving and providing untapped wealth to remodel and repair homes in 2014.