New Home Sales surged amid elevated consumer optimism - Nomura

While reviewing the New Home Sales data, analysts at Nomura noted that home affordability continues to deteriorate in the US and offered a GDP tracking update.

Key Quotes:

"New home sales rose solidly by 4.0% m-o-m in March to an annualized 694k, above expectations (Nomura: 620k, Consensus: 630k), with upward revisions to January and February sales. Strong March data and the upward revisions point to better-thanexpected sales activity in Q1.

Sales in the South and West rose solidly by 0.8% and 28.3% m-o-m, respectively, contributing to the upside surprise in the March report. Sales in the Northeast fell sharply by 54.8% m-o-m, possibly reflecting unseasonably cold weather in the Middle Atlantic region (NY, PA and NJ) in March. Sales in the Midwest fell modestly.

Solid gains in new home sales appear consistent with households that have remained confident about their near-term economic outlook throughout Q1. The April estimate of Conference Board’s consumer confidence index improved 1.7 index points to 128.7 in light of optimistic employment and income prospects. The labor differential index (the difference between those reporting jobs “plentiful” versus “hard to get”) fell slightly to 22.9, from 23.8, but remained near multi-year highs.

However, deteriorating home affordability could hurt demand by making it more difficult for first-time home buyers to enter the market. The median sales price of new homes rose 4.8% y-o-y to $337.2k. In addition to the recent pickup in mortgage rates, home prices have been rising faster than median income growth as supply shortages persist. Continued deterioration in home affordability could dampen demand in the medium to long term.

GDP tracking update: Stronger-than-expected March new home sales with backward revisions imply greater contribution from brokers’ commissions to real GDP growth in Q1. However, after rounding our Q1 real GDP tracking estimate remains unchanged at 1.6% q-o-q saar."