U.S. New Home Sales Jump to Five-year High in January

• New home sales in the US jumped 9.6% to 468,000 annualized units in January 2014 following upwardly revised sales of 427,000 in December 2013 (previously reported as 414,000). Today’s reading, which marked the highest level of sales since July 2008, was well above market expectations for a decline to 400,000 annualized units in the month.
• The inventory of unsold new homes was unchanged in January 2014 from an upwardly revised 184,000 in December 2013 (previously 171,000). With the significant jump in overall sales, this resulted in the months’ supply of new homes available for sale falling to 4.7 from 5.2 months in December.
• The solid increase in new home sales in January more than reversed declines in the previous two months, thereby leaving sales at a five-year high to start 2014. Following a brief and partially weather-related dip at the end of last year, today’s reading pointed to new homes sales continuing to pick up from a lull in the third quarter of 2013 when rising mortgage rates weighed on activity. Although modestly higher rates and rising home prices will affect affordability this year, we expect improving labour markets and solid income gains will provide more than enough offset to boost the housing market. Today’s report provided early support to our expectation that residential investment will strengthen throughout this year and will be one of the drivers of the US shifting to above-potential growth in 2014.

Sales of new single-family homes in the US jumped 9.6% to 468,000 annualized units in January 2014 following upwardly revised sales of 427,000 in December 2013 (previously reported as 414,000). Today’s reading, which marked the highest level of sales since July 2008, was well above market expectations for a decline to 400,000 annualized units in the month. The increase in headline sales reflected fairly widespread regional gains with the South (10.4%) and West (11.0%) posting solid increases while the much smaller Northeast region was up 73.7% in the month following a 40.6% drop in December. Some offset came from a 17.2% decline in the Midwest, which may reflect particularly adverse weather conditions in that region in January.

The inventory of unsold new homes was unchanged in January 2014 from an upwardly revised 184,000 in December 2013 (previously 171,000). With the significant jump in overall sales, this resulted in the months’ supply of new homes available for sale falling to 4.7 from 5.2 months in December. This continued to represent a fairly tight supply of unsold homes compared to the longer-run average of six months’ supply.

The solid increase in new home sales in January more than reversed declines in the previous two months, thereby leaving sales at a five-year high to start 2014. Following a brief and partially weather-related dip at the end of last year, today’s reading pointed to new homes sales continuing to pick up from a lull in the third quarter of 2013 when rising mortgage rates weighed on activity. Although modestly higher rates and rising home prices will affect affordability this year, we expect improving labour markets and solid income gains will provide more than enough offset to boost the housing market. Today’s report provided early support to our expectation that residential investment will strengthen throughout this year and will be one of the drivers of the US shifting to above-potential growth in 2014.

Information contained in this report has been prepared by the Economics Department of RBC Financial Group based on information obtained from sources considered to be reliable. While every effort has been made to ensure accuracy and completeness, RBC Financial Group makes no such representation or warranty, express or implied. This report is for information purposes only and does not constitute an offer to sell or a solicitation to buy securities.

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