New-home sales rose 3.5% in June, on top of a 3.8% upward revision to May sales. These were good numbers, and they support forecasts of further increases in new-home construction.
Our forecasts here have been looking for a flattening in new-home construction, and last week, when housing starts were announced as rising in June, we pointed out that those gains failed to raise starts levels above those of late-2015. Today's news doesn't quite vanquish our forecast, but neither does the news support it.
The accompanying chart shows single-family housing starts in blue and new-home sales in green. The scales are adjusted to reflect the impact of "owner-builds," which show up in starts but not in new-home sales. As seen there, even with today’s gains, June sales were barely enough to support the level of starts that we have already seen over the past 8 months.
In other words, in order for homebuilding to move higher in the second half, we will need to see further sharp gains in new-home sales in the months to come. Given the sales gains seen over the past 3 months, "further sharp gains" do not sound as far-fetched now as they did in April.
While conceding the positive import of recent home sales data, we still take issue with consensus thinking concerning home inventories. We hear continually about home inventories supposedly being low. Yes, the level of inventories is somewhat low relative to pre-crisis history, but by this standard, the level of home sales is extremely low. Inventories are quite high relative to sales. Currently, it takes a homebuilder 4.9 months to sell their typical unit. While this is down from year-ago levels, it is still far above the 4-month norms that held pre-crisis. So, yes, the housing outlook has improved recently, but there are still some rough spots in the outlook.