US New Homes Sales Surge in June

New home sales in June jumped 23.6% to 330,000 units from May’s downwardly revised record low of 267,000 units (initially reported 300,000 units). The rise beat market expectations for an increase to 312,000 units. Months’ supply of unsold new homes dropped to 7.6 in June from May’s 9.6 (revised from 8.5), while the total number of new homes for sale dropped to 210,000 from 213,000 in May, the lowest level since September 1968.

The better than expected rise in new home sales in June follows the large downward revision to the previous month’s already record low, but June still represents the second lowest pace of new home sales since records began in 1963.

The increase partially retraced the record setting 36.7% monthly decline seen in May, with large increases seen in the Northeast (46.4%), the South (33.1%) and the Midwest (20.5%). Weakness persisted in the West, with new homes sales falling by -6.6% on a month-over-month basis.

Inventories, as measured by months’ supply of unsold homes on the market at the current sales rate, fell to 7.6 in June from May’s upwardly revised 9.6 (previously reported as 8.5) on the surge in activity, remaining well below the recent peak of 12.1 set in January of 2009.

In absolute terms, the number of unsold new homes continued the generally downward trend seen since the summer of 2006, edging down to 210,000 in June from May’s 213,000 (unrevised) level. This number of new homes for sale marks the lowest level since September 1968.

Today’s new home sales report continues a pattern of less than impressive levels of activity coming from the housing market, and, with the Federal government’s homebuyers’ tax credit now a thing of the past, it appears that housing news will likely remain dour until further improvements are seen in the labour market.

The subdued inflationary pressures will allow the Fed to maintain accommodative monetary policy in an effort to foster sustainable employment growth. As a result, we continue to expect that the Fed funds rate remains in its current, highly stimulative range of 0% to 0.25% into next year.

RBC Economics Research