New Home Sales

This is the monthly report of new single-family home sales. It is produced by the census bureau and contains prices and inventory figures of new homes at the national level.

How important is it?

The new home sales data are important because they provide an insight into housing affordability and the buildup of equity. Higher home prices can obviously hurt affordability, but they can increase equity, which is in turn likely to stimulate consumer spending. Inventory data are used to determine demand and pricing trends. It simply gives a guideline for buyers as well as sellers of new homes.

How is it computed?

Calculation OF new homes data is done by comparing inventories with sales rates to create a ratio. This ratio is expressed as the amount of months it would take to sell the existing inventory at the current sales pace. If the ratio is trending higher meaning it takes longer to sell a house, that suggests demand and prices for new homes could be declining.

Yearly sales figures are derived from a Census Bureau survey, which is mainly based on a sample of houses selected from building permits. It is important to note that this survey includes only new single family structures and not multi-family units or other rental houses.

Impact on forex trade

The impact that the new home sales may have on the forex trade is not very direct as such. If new home sales are at their all time high, it may signal an increase in inflation. High inflation may then force the government to raise interest rates in a bid to contain the dollar value since many people would be skeptical about carrying out transactions using a weak dollar. This may thus affect the dollar’s forex rates indirectly. In the same spirit if the new home sales fall below expectations the Federal Reserve Bank may be forced to lower interest rates to encourage spending in an effort to keep the sector alive. It is however worth noting that the indicator is a lagging one. Also important to know is the fact that new home sales only carter for about 15% of all home sales.

Impact on stock market

The rate at which new-home sales meet expectations is one of the most influential aspects of the report. If the trend in sales exceeds forecasts in a way that hints the economy may be overheating, bond prices are likely to fall in anticipation of greater overall economic demand. Such a situation is likely to provoke the Federal Reserve Bank into introducing higher interest rates thus lowering stock prices in the process. By watching these trends, especially for investors with particular interest in the construction sector may get a good picture of things on the ground. If you have been planning to invest more in the sector, you would be well advised to watch the situation in order to make smart shifts according to tangible projections.

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