Unbelievable New Home Sales Growth? Largest Decline in New Home Prices on Record!

New home sales surprisingly rose +16.2% MoM in April (consensus +.2%). The largest monthly increase in 14 years. This gain was only slightly dented to by a revision lower in the March data to a decline of -1.4% MoM from an originally reported increase of +2.6%. New home sales are still down 11% YoY, and account for about 15% of the total home sales market. It appears that the tighter lending standards did not impede consumers from taking advantage of lower home prices and increased incentives by builders.

Purchases grew in three of the four regions, with the South leading the charge at +28%, followed by an +8.5% gain in the West and +3.8% in the Northeast. The Midwest weakened further, declining by 4%.

The median price (half of homes sell for more, half sell for less) of a new home dropped a substantial 11%MoM to $229,100 from $257,000 in March. This is the largest drop ever recorded. While all price categories saw increases in sales, the 150-300k categories saw the largest percentage increases of 24%MoM. In contrast, homes over $750k only grew 5% MoM. The mix of regions is also likely to have had an impact on the median price. The South tends to have the least expensive home construction costs, and the South saw the largest increase in sales.

The monthly supply of homes for sale fell to 6.5 months, at the current sales pace, versus 8.1 months in March. Most analysts still believe there is a glut of homes, but the absolute number of homes for sale is now down -4.7% YoY which compares to still growing supply as recently as February. The time it takes to sell a new home has now risen to 6 months from as little as 3.7 months last fall.

Many street analysts are questioning the believability of the improvement this month in new home sales growth. The new home data is susceptible to large revisions. The steep drop in home prices is not a good sign for the wealth of existing home owners, or the profits of the builders. Similar strength is not expected in tomorrow's existing home sales data.