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What July's New Home Sales Numbers Told Us About Homebuilders And The Market


July New Single-Family Home Sales numbers blew out the consensus estimate on August 23, 2016.

Historically, this economic indicator is a laggard, but suggests how the homebuilders and home-related retail industries may perform.

Three homebuilding stocks and two ETFs jumped higher due to the unexpected rise in the New Home Sales.

New home sales for July were released on August 23, 2016 and investors should continue to keep an eye on this market moving indicator for the rest of 2016. New home sales data continued its trend and did not disappoint investors. U.S. July new home sales surprised economists' estimates by 12.76% and grew by 12.4% month over month to an annualized rate of 654,000. This was nearly a 30% increase from July 2015 new home sales. Moreover, this was the fastest pace since October 2007.

The July new home sales data confirmed the strengthening U.S. economy, after new single-family home sales hit an 8 and ½ year high in June, suggesting low interest rates and low unemployment figures are strengthening the U.S. housing market.

On July 26, 2016, new home sales for June came in at 592,000, the best level since 2008, and beat the consensus estimate by 5.34%. In July 2016, Barclays U.S. economist Robert Martin said, "Today's report confirms the considerable strength in the housing market over the past few months," when speaking about June new home sales. This is still the case in August 2016.

The Federal Reserve's decision to leave rates unchanged for most of 2016 and a strong recovering U.S. job market bolstered new home sales. Although new home sales during the first half of 2016 shows volatile changes, looking past the volatility shows an upward trend in the economic indicator, as shown in the figure below.

Data Provided by St. Louis Fed

Why Investors Should Keep New Home Sales on the Watch List

The indicator is primarily used as a barometer for the demand of the housing market. For example, during the 2007 to 2009 financial crisis, people were insecure about their job stability and confidence in the U.S. economy, which ultimately led to weak new home sales, and in turn, the burst of the U.S. housing market bubble.

New home sales also indicate the strength of the U.S. economy's health and momentum. One could argue that July new home sales figures indicate that the U.S. economy is in stellar...