New-home sales rose explosively in April, up 16.6% on top of a March level that was revised upward almost 3.9%. Those two changes brought April new-home sales levels to 619,000 units per year. As seen in the accompanying chart, that level is about consistent with the April single-family starts level of 778,000 (the 159,000 unit difference between the two can be attributed mostly to owner-builds, homes that are started and built but never show up in new-home sales).
The chart shows a nuanced picture for homebuilding. When discussing the April housing starts data last week, we pointed out that while single-family starts had risen 3.3% in April, their April level was consistent only with flat building activity. Similarly, as strong as today's new-home sales news is, it is sufficient only to support the relatively soft April level of starts. In order to suggest further gains in starts and homebuilding, we would need further gains in new-home sales on top of the explosive gains today. (And it is growth in—rather than a high level of—housing starts that supports GDP growth.)
Prior to the April sales gain, new-home sales had shown essentially zero growth for a year. We have formerly remarked that the previously flat new-home sales trends suggested some pullback in homebuilding, and that we would need strong gains in new-home sales merely to sustain homebuilding at current levels. We've seen such gains...for 1 month. Going forward, new-home sales will have to sustain the April gains and jump further if homebuilding is to continue to provide some boost to overall economic growth in the second half of this year.
So, there is no question that today's news was favorable. Our point is that it will take a lot more of such good news to support a story of even modest contributions from housing to GDP growth.